Fixed deposits offering more than 8% interest rates on 1-2 year FDs – Compare the latest rates

Interest rates on fixed deposits (FDs) are currently relatively high. Smaller banks in India are offering rates that catch the eye. But should you take the plunge? Here’s a simple breakdown.

Foreign and small banks often offer higher interest rates as they want to attract more customers. It helps them compete with bigger players. They need deposits to lend money and grow their business. A higher rate means your money grows faster. For senior citizens, it’s even better. Almost all banks give higher interest rates ranging from 50 to 75 basis points to senior citizens on FDs.

Now let’s understand why higher interest rates on fixed investments are good. For example: Bank A offers 6% on a one-year FD. Bank B, a smaller bank, offers 7.5%. On a deposit of ₹10 lakh, you earn ₹75,000 with Bank B. With Bank A, it’s ₹60,000. That’s a ₹15,000 difference. Tempting, right?

Also Read: PPF Calculator: How much should you invest in PPF for long-term financial goals?

The Risks You Need to Consider

Higher returns often come with risks. Smaller banks may not be as stable as bigger ones. Think about this:

1. Bank Stability: Is the bank financially sound? Check their credit ratings. Lower ratings can mean higher risk.
2. Deposit Insurance: In India, deposits up to ₹5 lakh are insured by DICGC. This covers both principal and interest. If your deposit is above ₹5 lakh, the excess amount is not insured.
3. Liquidity: Smaller banks may face liquidity issues. This can affect their operations. Worse, it could affect your deposit.

Should You Take the Offer?

Here’s how you can decide:

1. Research the Bank: Look up the bank’s financial health. Check reviews and news. Has it faced issues recently?
2. Limit Your Deposit: Keep your deposit within the insured amount of ₹5 lakh. This ensures safety.
3. Diversify: Don’t put all your money in one bank. Split it between different banks. This reduces risk.
4. Look Beyond Rates: Check the bank’s customer service. Are there hidden charges? Is premature withdrawal allowed, and at what penalty?

Adhil Shetty, CEO of Bankbazaar.com says, “You may choose smaller banks for short-term FDs with higher rates. Stick to larger banks for long-term security. It is good to opt for banks offering higher interest rates on FDs to maximise your investment returns. Diversification of funds based on your goals also helps.”

Higher interest rates are attractive. Smaller banks can help you earn more. But don’t ignore the risks. Stay informed. Spread your money wisely. And always keep an eye on the bank’s stability.

Data as on respective banks’ website on 27 Dec 2024; For each year range, the maximum offered interest rate is considered; interest rate is for a normal fixed deposit amount below ₹1 crore. Compiled by BankBazaar.com