Bank fixed deposits have always been one of the most popular investment choices among retail investors. Particularly because of the guaranteed returns, especially for senior citizens as they have a low-risk appetite, and expectations of returns change with age. At this age most people retire, and most of them face the challenge of not outliving their resources that they have accumulated over the years. Several financial instruments offer special benefits to senior citizens. For instance, monthly income schemes, greater tax exemptions and higher assured returns on investments.
Other than top banks such as Axis, SBI, ICICI, and HDFC Bank, small finance banks over the past few years have started offering and highlighting the high deposit rates they offer. The higher interest rates offered by small finance banks appeal to most investors. For instance, Jana Small Finance Bank is currently offering a rate of 9.2 per cent on its fixed deposits. The State Bank of India, on the other hand, is offering a rate of 7.5 per cent for deposits between tenures of 1 year to less than 2 years, and senior citizens get a 50 bps higher rate.
Find out the bank FD options available for you and which one suits you the best:
Small Finance Bank Fixed Deposits
Small finance banks, like other commercial banks, are also regulated by the Reserve Bank of India (RBI). Industry experts say, the main purpose of having separate small finance banks is to expand access of financial services to the underbanked sections of the society. Such as low-income households, small businesses, migrant laborers, and other unorganized sector entities.
These banks offer almost everything that a normal commercial bank offers, including basic banking services, accepting deposits and lending. Experts say in order to expand their customer base as well as to gather deposits, some of these small finance banks are offering a higher deposit rate. These small finance banks also use the money from the deposits to lend money to their borrowers, like any other bank. So, while choosing any investment product, one needs to make sure to also take a look at the customer service of the financial institution, and should not only consider the returns.
In small savings bank, similar to other commercial banks, deposits up to Rs 1 lakh are insured by the DICGC (Deposit Insurance and Credit Guarantee Corp). The subsidiary of RBI has a list of insured banks on its website, and currently, 7 small finance banks are listed on its website.
Experts suggest one should limit their exposure to fixed deposits from small finance banks, as these banks have been in operation for only a short period of time. Unlike legacy banks, both in public or private sector, where they have many years of track record in handling deposits as well as loans. Financial advisors add, investors should invest only a part of their savings in small finance banks' deposits and should diversify their portfolios.
Bank Fixed Deposits
In India, bank fixed deposits are the most preferred investment option. Fixed deposits are considered safer as compared to investments in equity, as most of these investors invest a large chunk of their money and it also comes with an assured return in the form of interest.
Most banks offer higher interest rates to senior citizens, as compared to the general public, on fixed deposits. For instance, banks generally offer a 0.50 per cent higher interest rate to senior citizens, as compared to normal people. State Bank of India, on the 5 to 10 year fixed deposit, offers 7.10 per cent, ICICI Bank offers 7.50 per cent, Axis Bank offers 7.5 to 7.75 per cent and HDFC Bank offers 7 per cent, to senior citizens.
Senior citizens can choose how they want to receive their payouts. For instance, between regular interest pay-outs (non-cumulative option) or interest pay-out at the time of maturity (cumulative) along with the principal amount, senior citizens can choose their payout options to meet their daily expenses. The minimum amount that needs to be invested in a bank fixed deposit varies from bank to bank, whereas, there is no limit on the maximum amount that you can invest in a bank fixed deposit.