Small Finance Bank: FD is safe and easy in terms of investment, but if the condition of the economy is weak, then the interest on it also starts getting less. In some cases where the investor is in a higher tax bracket, the real interest rate can also be negative. In such a situation, the biggest question is also what is the alternative? Mutual funds and equities can be options but, if you are a conservative investor then you should go for the FD scheme of Small Finance Bank. Here one can get an interest rate of up to 6.75% for a tenure of 3-5 years.
According to Bankbazaar.com, Jana Small Finance Bank, Sarvodaya Small Finance Bank and Ujjivan Small Finance Bank are offering an interest rate of up to 6.75 per cent on FDs for 3-5 years. This interest rate on FDs of short duration of 2-3 years is being given through these banks up to 6.25-6.75%. Apart from these, if we talk about SBI, then up to 5.30% interest is being given on FD for 3-5 years.
Why the high interest rate in small banks?
Small Finance Bank – If SFB or Small Finance Bank gives you more interest than the current risk rate, then first you have to understand its difference and then the reasons. Small Finance Banks are directly regulated by the Reserve Bank of India (RBI). Some banks offer higher interest rates to attract customers so that their annual transactions are visible.
Invest only up to 5 lakhs
It should be remembered that all other bank deposits with small finance banks are covered under the Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance program which means an amount up to Rs 5 lakh is covered under insurance.
Suppose a Small Finance Bank is in loss, then the liability of your amount will be on DICGC. Since the amount exceeding Rs 5 lakh is not included in this. Therefore, it will be safe to invest only a maximum of Rs 5 lakh with a small bank.
This rule is applicable to all FD and bank account holders who are in single name. If you have two FDs of Rs 7-7 lakh each, out of these 14, only Rs 5 lakh will be covered under the insurance scheme. It also includes interest.
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