Higher than SBI, HDFC Bank, ICICI Bank: These small finance banks offer up to 9% on FDs

Most banks have revised their fixed deposit (FD) interest rates since the Reserve Bank of India (RBI) raised its repo rate to 6.5 per cent in February 2023, a jump of 250 basis points since May 2022. The good part is whenever RBI increases the repo rate, the interest rate on fixed deposits also goes up, thereby making it an attractive savings option.

This is the reason that all major banks, starting from the State Bank of India (SBI), HDFC Bank Limited to ICICI Bank have revised their interest rates. However, while commercial banks offer a return of up to 7.5- 8 per cent on fixed deposits, it is small finance banks (SFBs) that are leading the pack and offering a high return of up to 9 per cent on fixed deposits.

For example, Unity Small Finance Bank is offering an FD rate of 9 per cent on tenure of up to 1001 days. For senior citizens, the rate is higher up to 9.5 per cent. Another SFB, Suryoday Small Finance Bank (SSFB) has revised interest rates on fixed deposits and is offering 8.51 per cent interest rate on 999 days deposit, while senior citizens can get 8.76 per cent interest rate.

Similarly, Equitas Small Finance Bank is offering 8.20 per cent interest on FDs for less than Rs 2 crore for a tenure of 888 days. Senior citizens receive 0.50 per cent extra on the FD rates. Compared to SFBs, commercial banks like State Bank of India, ICICI Bank and HDFC Bank are offering 7.1 per cent on FDs of up to 1-2 years.

Small finance banks (SFBs) primarily focus on providing financial services to underserved segments of the population and are smaller than commercial banks in size. Due to their smaller size and focused target market, SFBs often have lower operating costs compared to commercial banks. Moreover, small finance banks have a higher risk appetite for lending to small businesses and individuals and that’s why they charge higher interest rates which also contribute to their ability to offer higher interest rates on deposits.

It's important to note that while higher interest rates may be attractive, one should also consider other factors such as the financial stability and the overall risk management of the bank before choosing where to deposit one's money.

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