Which PSU banks offer the best FD rates to senior citizens in May 2026?

Before you invest, it’s worth checking which banks are offering the best rates and the terms attached to them.

PSU bank FD rates in May 2026

FD rate trends over the last more than 2 years

Fixed deposits had touched multi-year highs during the high-interest-rate cycle in 2024, but they have been coming down gradually since then. Small finance banks and banks, in particular, aggressively increased FD rates between 2023 and early 2025 to attract more deposits amid tight liquidity conditions and strong loan demand. 

During this phase, many small finance banks were giving the senior citizens FD returns above 9%, especially on special tenures from 500 days to 3 years. But the trend has started to reverse after the Reserve Bank of India took a step towards rate cuts on easing inflation.

The RBI started cutting the repo rate from February 2025 after keeping rates on hold for a long time. Since then, the central bank has reduced the repo rate several times. The first cut was 25 basis points in February 2025, and the second cut was 25 basis points in April 2025. In June 2025, the RBI declared a sharper 50 bps cut and another 25 bps reduction came in December 2025. The repo rate was reduced to 5.25% from 6.50% in 2025, a cumulative cut of 125 basis points. 

As the cost of borrowing started to decline, banks also reduced fixed deposit interest rates. The first to lower FD rates were large private and public sector banks, while small finance banks took longer to cut rates to continue to attract deposits. 

The small finance banks continue to offer relatively higher fixed deposit (FD) interest rates compared to several large commercial banks, though rates have started to moderate gradually after recent cuts in RBI repo rates. As of May 8, 2026, BankBazaar has collected data from the respective bank websites and Suryoday Small Finance Bank is offering the highest FD interest rate among the listed lenders at 7.90% for deposits below Rs 3 crore.

Jana Small Finance Bank is not far behind either, with an FD rate of 7.77%. Utkarsh Small Finance Bank is offering up to 7.25%. Ujjivan Small Finance Bank is currently offering 7.20% interest on select FD tenures. Both AU Small Finance Bank and Equitas Small Finance Bank are offering up to 7.00% rates. Among the lenders mentioned, ESAF Small Finance Bank offers the lowest rate of 6.00%. Although the rate of return is lower than the peak FD rate cycle of the past two years, the small finance banks are still offering rates of over 7%, making them appealing for conservative investors and senior citizens who want to earn safe returns.

Some small finance banks were offering FD rates of 9% to 9.5% on select tenures to senior citizens in 2024 and early 2025. Most of those rates have declined closer to the 8% to 8.25% range for 2026. The drop may seem small in figures, but for retirees who rely on fixed income, even a 1% drop can mean a huge difference in annual interest earned on large deposits.

But the fall in FD returns has not dampened the interest of senior citizens in fixed deposits, as inflation has also moderated considerably in the last year. The real return – the return after adjusting for inflation – is still relatively comfortable for conservative investors as inflation is lower. 

This is especially true for retirees who care more about capital safety and predictable income than aggressive growth. But senior citizens shouldn’t just chase the highest interest rates but also consider factors such as DICGC insurance cover up to Rs 5 lakh per depositor per bank, the financial health of the institution, liquidity needs, and whether the FD is callable or non-callable. 

Disclaimer:

FD interest rates are subject to change and may vary based on tenure, deposit amount, and bank policies. Investors should check the latest rates on the respective bank’s website before investing. While deposits up to Rs 5 lakh are insured under DICGC, diversification across banks and tenures is advisable to manage risk and liquidity.