Upto 7% Interest Rate On Both FD and Savings Accounts By Small Finance Banks! Are They Safe?

The past few years in the banking industry have witnessed the rise of Small Finance Banks (SFBs). The primary aim behind the introduction of these banks has been to deepen the financial inclusion in the country by serving the underserved or otherwise ignored sectors and areas, such as the unorganized sector, small businesses, farmers and micro industries.

Moreover, the presence of this regulation by RBI to not let SFBs lend to corporate entities is what spares SFBs from lending big-ticket loans to the corporates, which can be helpful in lowering the probability of mounting higher non-performing assets (NPAs).

In addition, these banks have been aiming to carve their own niche and grab market share, with the relatively high bank FD and savings account rates being one of the ways being adopted by SFBs. When compared to the big banks (in terms of market capitalization) like HDFC, ICICI, SBI, Axis, Kotak, PNB etc. SFBs have been offering much higher rates.

Bank FD rates of the relatively bigger banks are currently ranging around 2.5%-5.75%, whereas SFBs have been offering in the range of 2.9%-7% p.a. for varying tenures. As far as savings account rates are concerned, the bigger banks are offering around 2.70%-3.50%, whereas SFBs have been offering in the range of 3%-7% p.a for varying bank balances.

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Also Read: Frequently (Not) Asked Questions - What Are The Risks Of Investing In 'Safe' Bank FDs

Despite this, many of us still prefer to stay away from putting our hard-earned money into SFBs, isn't it? Maybe it's their newness or the word ¡®small¡¯ in their name that prevents us from benefiting from their high rates. Regardless of the reason, let's clear the air for you.

Just like other scheduled commercial banks under RBI, SFBs too come under the purview of RBI and have to follow the guidelines set by RBI. In terms of risk, the same DICGC insurance cover of up to ?5 lakhs that applies to other commercial banks, applies to SFBs too. So your deposits, including savings account, FD, RD and current account in SFBs are equally insured under DICGC, for up to ? 5 lakh per bank per depositor in the event of bank failure.

So, instead of being sceptical towards SFBs, be assured that your money is safe through this insurance under DICGC. And as mentioned earlier, SFBs operate just like other commercial banks, hence there isn't any specific need to take any additional precautions when opening deposits with them to benefit from the higher bank FD and savings account rates. Yes, they are relatively new to the banking industry, but isn't it better to treat them as fresh air instead of staying away from them, that too without solid reasons?

Also Read: Worth Explains - What Are Corporate Fixed Deposits? Are They Better Than Bank FDs?

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