After the Reserve Bank of India (RBI) announced a 25 basis points repo rate cut in February 2025, many investors are eagerly seeking fixed deposit (FD) schemes that offer higher returns to maximize their savings. In response to this, several small finance banks (SFBs) are now offering interest rates as high as 9% per annum for specific tenures, significantly outperforming the rates provided by traditional commercial banks. This surge in competitive rates has attracted both seasoned investors and first-time depositors who are looking for safe, reliable, and high-yield investment options amid fluctuating market conditions.
Small finance banks are a unique category of financial institutions established by the RBI to promote financial inclusion. Their primary goal is to extend essential banking services to underserved sections of the population, including small farmers, micro-businesses, low-income households, and workers in the unorganised sector. These banks operate with a focus on providing credit to small businesses and promoting savings among communities that typically lack easy access to formal banking systems. As a result, they tend to offer more attractive fixed deposit rates to draw in more customers and expand their deposit base.
For instance, Unity Small Finance Bank stands out with an impressive 9% per annum rate on a 1001-day FD, making it one of the most lucrative options in the market. It also offers a competitive 7.85% per annum for a one-year FD, appealing to investors seeking short-term gains. Similarly, NorthEast Small Finance Bank matches the 9% per annum rate for deposits held between 18 months 1 day to 36 months and offers a 7% annual rate for a one-year FD, making it a strong contender among its peers.
Suryoday Small Finance Bank offers a noteworthy 8.6% per annum for a five-year fixed deposit, making it an attractive choice for long-term savers. It also provides an appealing 8.25% per annum for a one-year deposit, ensuring flexibility for those who prefer shorter commitments. Meanwhile, Utkarsh Small Finance Bank competes with an 8.5% per annum rate on deposits spanning 2 to 3 years or a unique 1500-day tenure, alongside an 8% per annum rate for a one-year FD — a balanced option for medium-term investors.
Jana Small Finance Bank remains a strong player with an 8.25% per annum interest rate for deposits ranging from one to three years. Ujjivan Small Finance Bank offers a similar rate of 8.25% per annum for an 18-month tenure and 8.1% for a one-year fixed deposit, combining decent returns with flexibility. AU Small Finance Bank, another reliable name in this space, offers 8.1% per annum for an 18-month FD, while its one-year rate stands at 7.25% per annum — still higher than most traditional banks.
When it comes to safety, many investors wonder whether small finance banks are as secure as larger, established commercial banks. The good news is that deposits in small finance banks are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs 5 lakh per depositor — the same coverage provided to account holders in commercial banks. This insurance includes both principal and interest, ensuring a safety net for cautious investors. Financial experts, however, still advise keeping deposits within this insured limit for added security, especially when dealing with newer or less established banks.
It’s important to note that while small finance banks offer higher interest rates, they operate under a different framework than major commercial banks. Their primary mandate is to serve niche markets and promote financial inclusion, which means they may face unique operational challenges. This makes risk management an essential consideration for investors. Before committing to an FD, it’s advisable to review the bank’s financial health, credit ratings, and track record to ensure your money stays secure.
Ultimately, small finance banks present an enticing opportunity for those seeking higher returns on fixed deposits. With interest rates touching 9% per annum, they offer a compelling alternative to conventional banks — particularly for those who prioritize maximizing earnings over traditional brand loyalty. However, balancing the allure of high returns with the safety of insured limits and careful selection of banks is key to making the most of these opportunities.
