Small Finance Banks offer better interest rates then commercial banks in the country and are also governed by the Reserve Bank of India. If a commercial bank defaults on paying the deposit, which rarely happens, then deposit holders are insured up to a sum of Rs 1 lakh, through the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Most of the small finance banks (not all) also offer similar insurance upto Rs 1 lakh.
So, up to Rs 1 lakh, the deposits can be considered as relatively secure.
Here are 5 small finance banks that offer better interest rates than commercial banks.
Jana Small Finance Bank
Jana Small Finance Bank offers an interest rate of 9 per cent per annum on its 3-year deposits. Senior citizens get an interest rate of 9.6 per cent, which is not bad at all.
Even a 181 day deposit fetches, you a very good interest rate of 8.5 per cent. So, whether it is a short or a longer term tenure, the deposit interest rates are not bad at all. In case you are not liable to pay tax and there is a TDS, you can submit form 15g or 15h as the case maybe.
We have highlighted the risks and other aspects already above.
Fincare Small Finance Bank
The interest rates at Jana Small Finance Bank is almost similar to that of Jana Small Finance Bank,whereby the highest interest rate is 9 per cent. However, here the interest rate is for 24 to 36 months.
If you are looking at shorter durations, then a 12 to 15-month deposit offers an interest rate of 8 per cent. This again is very much competitive.
It is also important to remember that the tax liability of FDs at small finance banks is the same as that of commercial banks. A TDS would be applicable where interest rates cross Rs 10,000.
Equitas Small Finance Bank
The interest rate here is slightly lower at 8.80 per cent for tenures from 2 years 1 day to 3 years.
If you are looking for a sightly lower tenure of 271 - 364 days, the interest rate offered here is 7.50 per cent. This again is a good interest rate for a short term tenure.
The above interest rates are also applicable to NRO deposits. Senior citizens are offered a decent 0.75 per cent extra on the above mentioned interest rates.
Ujjivan Small Finance Bank
Ujjivan Small finance Bank offers an interest rate of 8.6 per cent on a 799 days deposit. The 3 years and 1 day to 5 years, offers an interest rate of 7 percent, whereas a 735 days deposit offers an interest rate of 8.25 per cent.
As mentioned earlier, deposits from most of the small saving banks (not all) are covered under the insurance scheme upto Rs 1 lakh.
Small Finance Banks are governed by the RBI and hence there is some level of comfort. There are many other small finance banks that offer a decent interest rates, which are well compared to banks.
With interest rates likely to move higher, investors must consider a shorter term duration.