- Small finance banks offer fixed deposit rates up to 8.10% for five-year deposits
- Public sector banks provide lower fixed deposit rates, around 7.15% for select tenures
- Deposits up to Rs 5 lakh per bank are insured by DICGC for both bank types
Fixed deposits (FDs) remain a core building block in personal finance, particularly for investors seeking principal safety and steady interest income. When comparing options, two major categories stand out: the small finance banks and the larger traditional public sector banks (PSUs). Which one gives better returns right now? Here's your three-point guide:
Interest Rates
Small finance banks have emerged as strong contenders in the fixed deposit market of late, offering some attractive returns. Senior citizens, in particular, stand to benefit, with Suryoday Small Finance Bank giving rates as high as 8.10% on five-year deposits and Jana Small Finance Bank offering up to 8% for similar tenures.
On the other hand, public sector banks continue to offer relatively lower fixed deposit rates, with some reporting peak returns of around 7.15% for select tenures.
Why The Rate Gap?
The higher rates at small finance banks reflect their need to attract deposits and compete. Being newer and smaller in scale, they may be willing to offer higher yields to build the deposit base.
On the other hand, PSU banks benefit from huge scale, wide branch networks, and a trusted brand name. So, their rate levels are usually lower but backed by broader safety.
Safety And Other Considerations
Apart from returns, safety also remains a key factor. Both PSU bank and small finance bank FDs are considered secure, as deposits of up to Rs 5 lakh per depositor per bank, covering both principal and interest, are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India.
This insurance provides an essential safety cushion for small depositors. But it is still wise to review the financial health of the bank before making any investment.
At present, small finance banks are offering higher fixed deposit returns than public sector banks. The decision shouldn't be based on interest rates alone; it also depends on your risk appetite, how much of your deposit falls within the insured limit and whether you prefer absolute safety over slightly higher gains.
If you're seeking better returns, small finance banks can be a good choice. On the other hand, if you prioritise trust, long-standing reputation and stability, a PSU bank FD may be the more suitable option, even with comparatively lower rates.
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