Fixed deposit interest rates are on the rise, and the majority of banks are now promising returns that outpace inflation as a result of the Reserve Bank of India’s (RBI) uptick in the repo rate of 250 basis points (bps) since May 2022. Fixed deposits are now the favoured option for investors seeking a stable income owing to the attractive interest rates. There are three banks that are currently giving their investors returns of more than 9%, so those looking for banks with the highest returns in comparison to the skyrocketing fixed deposits should be aware of this.
Unity Small Finance Bank FD
On fixed deposits of less than ₹2 Cr, Unity Small Finance Bank hiked its interest rates on 15th February 2023. On a deposit tenure of 1001 days, the bank is now promising a maximum interest rate of 9.50% for senior citizens and 9% for the general public. And on two separate tenors of 181-201 days and 501 days, the bank is offering a standard rate of 8.75% and 9.25% for senior citizens.
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Utkarsh Small Finance Bank FD
Utkarsh Small Finance Bank hiked interest rates on fixed deposits of less than ₹2 Cr on 27th February 2023. On a deposit tenor of 700 days, the bank is offering a maximum interest rate of 8.25% to the general public and 9.00% for senior citizens.
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Fincare Small Finance Bank FD
On March 24, 2023, the bank hiked its interest rates on fixed deposits of less than ₹2 Cr. On a deposit tenor of 1000 days, the general public will get a maximum return of 8.41% whereas senior citizens can earn 9.01%.
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Should you invest in small finance bank FDs?
Let’s find opinions from various industry experts on whether one should invest in small finance bank FDs or not.
Govind Singh, MD and CEO, Utkarsh Small Finance Bank
Yes, it is a good time for Senior citizens to invest and take advantage of the interest rates provided by the bank. This will help in long-term wealth creation with the assurance and the safety of the money deposited by the senior citizens.
CA Manish P. Hingar Founder at Fintoo
Globally, interest rates are rising and the Reserve Bank of India (RBI) too has increased its repo rates by 250 basis points from May 2022 to February 2023, moving from 4.0% to 6.5%. This has led to an increase in the interest rates offered by banks on fixed deposits. Presently, Indian banks offer interest rates for medium to long tenure fixed deposits ranging from 7% to 8.5%, with small finance banks such as Unity SFB, Utkarsh SFB, and Fincare SFB offering rates as high as 9% for senior citizens. However, whether it is safe to invest in these high-interest rate fixed deposits from small savings banks depends on the risk it carries.
Investors should understand that high returns are typically associated with high risk, and this risk cannot be ignored when making investment decisions. While past returns and incidents are important considerations, they cannot be relied upon entirely. For instance, Punjab and Sind Bank and Maharashtra Co-operative Bank were popular choices for Indian investors, but when these banks collapsed, investors were left in a state of panic and their funds were stuck with the banks. According to data from SBI, deposits in India’s regional rural banks are insured to the tune of 82.9%, while the figure is 66.5% for cooperative and local area banks and 76.4% for other types of banks.
Senior citizens are often more conservative and tend to have a moderate risk profile, and thus, it is not advisable for them to invest in fixed deposits from small finance banks solely based on high-interest rates. It is recommended that investors, particularly senior citizens, stick with bigger banks when it comes to investing in fixed deposits. Additionally, senior citizens can also consider investing in Small Savings Schemes such as the Senior Citizen Savings Scheme or National Savings Certificate, which offer fixed returns along with government security.
Investing in fixed deposits is suitable for investors seeking guaranteed returns with lower risk, but factors such as age, income, expenses, risk appetite, financial goals, and investment horizon should be taken into account. Fixed deposits do not offer inflation-adjusted returns and do not help in building wealth in the long term through capital appreciation, so it does not make sense to invest all of one’s savings in fixed deposits.