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A bank fixed deposit is considered as the safest form of investment available today, especially with a large commercial bank like SBI and others. It is not only a risk free investment option, but is also available any time (Before maturity as well at the cost of some charges). But, fixed deposit with any commercial bank is criticized for its low returns when compared to other market linked investment options like Mutual Funds.
However, major banks offer relatively lower FD interest rates on your investment. So, you can opt for not-so-popular but high yielding fixed deposits with small finance banks, which offer higher FD interest rates.
Unlike the large commercial banks such as the State Bank of India, HDFC Bank, ICICI Banks and others, small finance banks offer higher FD interest rates, which can help you earn as high as 9% p.a. on your investment.
How are small finance banks different from regular banks?
Small Finance Banks started its operations to provide financial and banking services to all the sections of the economy in India. Similar to all the major banks in India, the Small Finance Banks are well regulated by the Reserve Bank of India (RBI). It is necessary for the all the banks (Major Banks as well as Small Finance Banks) to follow the guidelines set by the Reserve Bank of India.
Small Finance Banks helps to deliver basic banking facilities to all the sections of the economy. Any promoter with more than 10 years of experience in banking and finance business are allowed to start these banks. These banks provide high interest rates on savings account as well as fixed deposits when compared to major banks. For instance, with State Bank of India you can earn 3.5% p.a. with less than Rs. 1 crore on savings deposit account, while a small finance bank like Suryoday will help you yield up to 7.25% per annum.
With the basic banking services, they also provide facilities like internet banking and debit cards. They also sell forex, mutual funds and insurance to customers. However, the primary difference between a major bank and Small Finance Banks lies in the fact that the latter does not deal in products like loans and credit cards.
Some of the most prominent small finance banks include Fincare Small Finance Bank, AU Small Finance Bank, Ujjivan Small Finance Bank and Equitas Small Finance Bank.
For individuals, small finance banks offer investment options with high rate of interest in comparison to the major banks in India.
Why should you invest in Small Banks Fixed Deposit?
Small Finance Banks currently offer higher FD interest rates than major banks as they want to attract more customers. Major Banks offer fixed deposit interest rate ranging from 5% to 7.5%. Whereas, Small Finance Banks offer interest rates up to 9% per annum. For instance, the State Bank of India provides fixed deposit interest rate of 6.70% per annum (Tenure - 1 Year) to regular citizens. On the other hand, ESAF Small Finance Bank offers its customers (regular citizens) 8.75% interest per annum. Below is a list of Small Finance Banks that offer high interest rates on Fixed Deposits.
Note: Interest rates are subject to change as per bank's discretion. The interest rate applicable is for tenure of 1 year.
Things to Consider While Choosing a Small Finance Bank Fixed Deposit
Fixed Deposit is considered as one of the safest investment option available in India. But, many individual still have second thoughts on investing in a fixed deposit with Small Finance Bank. This makes it essential to do a thorough research to select the best fixed deposit available with a Small Finance Bank which can help you in maximising your earnings. Following are some of the key points to consider before investing in a fixed deposit with Small Finance Bank in India:
FD Interest Rate - Fixed Deposit interest rate offered by the bank is the primary factor which attracts customer to make investment in a small finance bank. Generally, higher the rate of interest offered on fixed deposits, more will be the individuals to avail the fixed deposit scheme.
Tenure - Fixed Deposit tenure is also an important aspect to consider before investing in a FD with small finance bank. You should select fixed deposit tenure with the highest interest rate in the least possible time.
Credibility - This is one of the most important aspects to consider while investing in a Small Finance Bank. Though, you get a protection cover on investments up to Rs. 1 lakh by the Deposit Insurance and Credit Guarantee Corp., which is a subsidiary of the Reserve Bank of India. Still, it is always advisable to select a small finance bank which offers high interest rates on fixed deposits and have good credibility.
Withdrawal - Choose a Small Finance Bank that offer lowest penalty on withdrawal of Fixed Deposits.
Which one should you choose?
If you are looking to invest your funds in fixed deposits, you should consider not only interest rates but also check the customer service of the bank. Also, many individuals think that Small Finance Banks are not safe for making investments. Whether it is a small bank or a major bank, FDs are relatively low risk investment option when compared with other products.
Many of you might not be aware of the fact that you get a protection cover on your deposits made up to Rs.1 lakh.
This protection is provided by Deposit Insurance and Credit Guarantee Corp. which is a subsidiary of the Reserve Bank of India. It insures all bank deposits such as savings, fixed, current and recurring deposits against risk of loss arising from a bank failure or shut down.
So, even if your bank gets liquidated, your deposits up to Rs 1 lakh are safe.
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