Fixed deposits of Commercial Banks Vs Small Finance Banks: Which one should you go for?

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Updated: July 19, 2019 8:39:22 AM

Some of the banks are offering returns up to 9% on their regular FDs, which can go up to 9.5% in case of senior citizen FDs. However, which one is a better choice for you?

fd rates, fixed deposit rates, fixed deposit rates comparison, fixed deposit rates SBI, FD rates in HDFC, FD rates in SBI, fd rates axis bank, ICICI, small finance bank fd rates, jana small finance bank fd ratesSince small finance banks are newer entities, many depositors are bound to have concerns regarding their stability, despite their higher rate of interest in comparison to other commercial banks.

Small finance banks are in the news these days. More because of the higher rates of return they give on their fixed deposits (FDs). In fact, some of the small finance banks (SFBs) are offering returns up to 9% on their regular FDs, which can go up to 9.5% in case of senior citizen FDs. This is definitely very lucrative, particularly in the current falling interest rate regime when even leading commercial banks like the State Bank of India (SBI) and HDFC Bank are offering not more than 7.25% returns on their FDs.

However, before getting lured by the high interest rates being offered by small finance banks on their FDs, the key question to ask is: “Are these FDs a good bet? Or, should I still go for a commercial bank FD?”

It is difficult to answer these queries because the investment choice depends on one’s risk appetite. For instance, if you are a risk-averse investor who is wary of taking any risk, then the fixed deposits being offered by leading banks should be your choice. However, if someone is willing to take some risks for higher returns, then he easily can go for the FDs of small finance banks.

Industry experts say that being a niche category of commercial banks, small finance banks were mainly created to cater to sections which were unserved or underserved by the banking industry. However, since SFBs are newer entities, many depositors are bound to have concerns regarding their stability, despite their higher rate of interest in comparison to other commercial banks.

Naveen Kukreja, CEO & Co-founder, Paisabazaar.com, says, “Given the past track record of the government and the RBI in dealing with bank failures, such fears are ungrounded. As of now, 8 out of 10 SFBs have been included in the Second Schedule of the RBI, which makes them equally safe as other commercial banks. Banks listed in the Second Schedule are covered under the depositor insurance program of Deposit Insurance and Credit Guarantee Corporation (DICGC). This insurance covers deposits in current and savings account, as well as fixed and recurring deposit, for up to Rs 1 lakh per depositor per bank in case of bank failure.”

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Some financial experts, however, are of the view that risks to the loan portfolios of small finance banks are much higher than the ones managed by larger banks. Hence, the greed of a slightly better return on fixed deposits should not lure you towards them.

“Usually the part of your savings put in fixed deposits is the one where you do not wish to have any risk or chance of loss. Therefore, do not take any chances and always put the risk-free part of your portfolio only with the FDs of frontline banks. Wherever you are comfortable with risk and wish to go for higher returns, then invest in equities or other high growth assets. There at least you will get a high return commensurate with the risk taken,” says Ashish Kapur, CEO, Invest Shoppe India Ltd.

Whatever be the case, here we are taking a look at the latest FD rates of some of small finance banks and commercial banks:

 

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