The Reserve Bank of India (RBI) decided to keep the repo rate unchanged in its latest monetary policy review earlier this month. The central bank had last raised the key rate in Feb 2023 to 6.50 per cent, hiking the key rate by 250 basis points. Since then, the Monetary Policy Committee (MPC) has kept repo rates steady at 6.50 percent, renewing investors’ interest in fixed deposits (FDs).
FD interest rates are revised based on the change in key policy rates, specifically the repo rate. When the repo rate rises, banks may increase FD interest rates and reduce them when the repo rate falls.
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FDs help in building a corpus by offering guaranteed returns. They let you park a sum of money with a financial institution for a specified period at a predetermined interest rate. Whether it is for short-term goals, like a dream vacation or long-term aspirations like buying a home, FDs can help you boost your savings and help you meet your financial goals.
With investors increasingly favouring mutual funds over traditional saving avenues like fixed deposits, banks are grappling with a liquidity impact. This shift in investing patterns is anticipated to influence short-term FDs, with 1-year rates projected to increase while long-term rates expected to stabilize. In this scenario, investors, especially senior citizens, can benefit by capitalizing on short-term rate hikes for higher interest earnings. To further optimize returns, one can employ investment strategies like FD laddering. This involves spreading investments across multiple deposits with varied tenures, essentially creating a “ladder” of fixed deposits with distinct maturity dates.
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Fixed deposits provide a combination of liquidity and a guaranteed stream of interest income at regular intervals. The inherent liquidity of FDs makes them a valuable tool in constructing an emergency fund.
When evaluating FDs, it is important to understand the difference between large and small finance banks. Large banks typically offer lower interest rates than small banks, but are comparatively more stable and reliable. On the other hand, small finance banks may offer higher interest rates, usually 1-2% higher than larger banks, but may lack the degree of stability offered by larger banks. There are a few small finance banks (SFBs) which currently offer FD returns of around 9%.
Both large and small finance banks in India are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which ensures protection of deposits up to Rs.5 lakh per depositor. Before making a decision, assess your risk appetite, financial goals, and the duration for which you can lock in your funds. Understand the terms and conditions of the investment, including premature withdrawal penalties, and the impact of taxes on your FD returns.
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If you are planning to invest in small finance banks, take a look at their latest rates for different tenures.
Highest Advertised FD Interest Rates Currently Being Offered by Leading Small Finance Banks
| Bank | <1 year | 1 to 2 years | 2 to 3 years | 3 to 5 years | w.e.f |
| AU Small Finance Bank | 6.75 | 8 | 7.5 | 7.5 | Jan 24 |
| Equitas Small Finance Bank | 6.25 | 8.5 | 8.25 | 7.5 | Aug 21 |
| ESAF Small Finance Bank | 6 | 8.25 | 8.25 | 6.25 | NA |
| Fincare Small Finance Bank | 7 | 8.21 | 8.61 | 8.25 | Oct 28 |
| Jana Small Finance Bank | 8 | 8.5 | 7.25 | 7.25 | Jan 02 |
| Suryoday Small Finance Bank | 6 | 8.5 | 8.65 | 8.25 | Dec 22 |
| Utkarsh Small Finance Bank | 6.5 | 8.5 | 8.5 | 8.25 | Aug 21 |
| Ujjivan Small Finance Bank | 6.5 | 8.25 | 7.75 | 7.2 | Jun 1 |
Disclaimer: Table updated on February 9, 2024. The best rate for resident, retail, callable FD under ₹1 crore considered. Top 10 banks by term deposit holdings considered. Compiled by BankBazaar.com, India’s largest fintech co-brand credit card issuer.
