Do Small Commercial Banks Offer Higher Interest Rates Than Commercial Banks?
Investors have started showing interest in fixed deposits because of the rising interest rates.
Small finance banks are offering better interest rates than commercial banks. Au Small Finance Bank, Jana Small Finance bank, Capital Small Finance Bank, Fincare Small Finance Bank, Equitas Small Finance Bank, ESAF Small Finance Bank, Suryoday Small Finance Bank, Ujjivan Small Finance Bank and Utkarsh Small Finance Bank are few of the Small Financial Banks operating in our country.
These banks offer higher interest rates to investors to increase their client base.
What Is a Small Finance Bank?
Small finance banks are a type of niche bank in our country. Like other commercial banks, these banks can carry on basic banking activities of lending and taking.
The objective behind these banks is to provide services to those sections of the society who are not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganized sector entities.
The main purpose of having small finance banks is to provide better access to financial services to the underbanked sections of society like laborers, the low-income section, small businesses, and other unorganized sector entities.
Small Finance Banks have a mandate to have a higher proportion of their lending to priority sectors.
Savings and Fixed Deposit Interest Rates of Small Finance banks
1.Au Small Finance Bank
| Savings Account Amount Slab | Rate of Interest |
| Savings Account Balance less than 1 lacs | 5 % |
| Savings Account Balance from 1 lacs to less than 10 lacs | 6.5 % |
| Savings Account Balance more than 10 lacs | 6.75% |
| Fixed Deposit Tenure Slab | Rate of Interest |
| Fixed Deposit Tenure of 7 to 1 month 15 days | 5.50 % |
| Fixed Deposit Tenure of 1 month 16 days to 3 months | 6.75 % |
| Fixed Deposit Tenure of 3 months 1 day to 6 months | 6.90 % |
| Fixed Deposit Tenure of 6 months 1 day to 13 months | 7 % |
| Fixed Deposit Tenure of 13 months 1 day to 18 months | 8.25 % |
| Fixed Deposit Tenure of 18 months 1 day to 24 months | 8.50 % |
| Fixed Deposit Tenure of 24 months 1 day to 36 months | 7.75 % |
| Fixed Deposit Tenure of 36 months 1 day to 45 months | 7.75 % |
| Fixed Deposit Tenure of 45 months 1 day to 60 months | 8 % |
| Fixed Deposit Tenure of 60 months 1 day to 120 months | 7.25 % |
The rate of interest offered by Au Small Finance Bank in savings account ranges from 5% to 6.75% depending on the amount we are keeping in the savings bank account.
The rate of interest for a fixed deposit ranges from 5.5% to as high as 8.5% depending on the tenure for which we as investors want to invest.
2.Equitas Small Finance Bank
| Savings Account Amount Slab | Rate of Interest |
| Savings Account Balance less than 1 lacs | 5 % |
| Savings Account Balance from 1 lacs to less than 10 lacs | 6 % |
| Savings Account Balance from 10 lacs to less than 1 Crore | 6.5% |
| Savings Account Balance from 1 Crore to less than 5 Crore | 7 % |
| Savings Account Balance from 5 Crore to less than 30 Crore | 7.25 % |
| Savings Account Balance from 30 Crore to less than 50 Crore | 7.50 % |
| Fixed Deposit Tenure Slab | Rate of Interest |
| Fixed Deposit Tenure of 7 to 14 days | 5 % |
| Fixed Deposit Tenure of 15 to 29 days | 5.50 % |
| Fixed Deposit Tenure of 30 to 45 days | 6 % |
| Fixed Deposit Tenure of 46 to 62 days | 6.25 % |
| Fixed Deposit Tenure of 63 to 90 days | 6.25 % |
| Fixed Deposit Tenure of 91 to 120 days | 6.50 % |
| Fixed Deposit Tenure of 181 to 210 days | 6.75 % |
| Fixed Deposit Tenure of 211 to 270 days | 6.75 % |
| Fixed Deposit Tenure of 271 to 364 days | 7.50 % |
| Fixed Deposit Tenure of 1 year to 18 months | 8.50 % |
| Fixed Deposit Tenure of 18 months 1 day to 2 years | 8.75 % |
| Fixed Deposit Tenure of 2 years 1 day to 3 years | 8.80 % |
| Fixed Deposit Tenure of 3 years 1 day to 4 years | 7 % |
| Fixed Deposit Tenure of 4 years 1 day to 5 years | 7 % |
| Fixed Deposit Tenure of 5 years 1 day to 10 years | 7 % |
The rate of interest offered by Equitas Small Finance Bank in savings account ranges from 5% to 7.5% depending on the amount we are keeping in the savings bank account.
The rate of interest for a fixed deposit ranges from 5% to as high as 8.8% depending on the tenure for which we as investors want to invest. Which is a commendable trait in a bank
3.Jana Small Finance Bank
| Savings Account Amount Slab | Rate of Interest |
| Savings Account Balance upto 1 lacs | 5 % |
| Savings Account Balance more than 1 lacs to 10 lacs | 6 % |
| Savings Account Balance more than 10 lacs to 5 Crore | 7 % |
| Savings Account Balance more than 5 Crore to 25 Crore | 7.5 % |
| Savings Account Balance more than 25 Crores | 8 % |
| Fixed Deposit Tenure Slab | Rate of Interest |
| Fixed Deposit Tenure of 7 to 45 days | 6 % |
| Fixed Deposit Tenure of 46 to 60 days | 6.50 % |
| Fixed Deposit Tenure of 61 to 180 days | 7 % |
| Fixed Deposit Tenure of 181 to 365 days | 8.50 % |
| Fixed Deposit Tenure of more than 1 year to 2 years | 8.50 % |
| Fixed Deposit Tenure of more than 2 year to less than 3 years | 8.50 % |
| Fixed Deposit Tenure of 3 years | 9 % |
| Fixed Deposit Tenure of more than 3 years to 5 years | 8.50 % |
| Fixed Deposit Tenure of more than 5 years to 10 years | 7 % |
The rate of interest offered by Jana Small Finance Bank in savings account ranges from 5% to 8% depending on the amount we are keeping in the savings bank account.
The rate of interest for a fixed deposit ranges from 6% to as high as 8.5% depending on the tenure for which we as investors want to invest.
4.Ujjivan Small Finance Bank
| Savings Account Amount Slab | Rate of Interest |
| Savings Account Balance upto 5 lacs | 4 % |
| Savings Account Balance more than 5 lacs to 50 lacs | 5.50 % |
| Savings Account Balance more than 50 lacs to 5 Crore | 6.75 % |
| Savings Account Balance more than 5 Crores | 7 % |
| Fixed Deposit Tenure Slab | Rate of Interest |
| Fixed Deposit Tenure of 7 to 29 days | 5.50 % |
| Fixed Deposit Tenure of 30 to 89 days | 6.25 % |
| Fixed Deposit Tenure of 90 to 179 days | 6.75 % |
| Fixed Deposit Tenure of 180 to 364 days | 7.50 % |
| Fixed Deposit Tenure of 1 year to 2 years | 8.30 % |
| Fixed Deposit Tenure of 2 years 1 day to 734 days | 7.50 % |
| Fixed Deposit Tenure of 735 days | 8.25 % |
| Fixed Deposit Tenure of 735 to 798 days | 7.50 % |
| Fixed Deposit Tenure of 799 days | 8.60 % |
| Fixed Deposit Tenure of 800 days to 3 years | 7.50 % |
| Fixed Deposit Tenure of 3 years 1 day to 5 years | 7 % |
| Fixed Deposit Tenure of 5 years 1 day to 10 years | 6.50 % |
The rate of interest offered by Ujjivan Small Finance Bank in savings account ranges from 4% to 7% depending on the amount we are keeping in the savings bank account.
The rate of interest for a fixed deposit ranges from 5.5% to as high as 8.6% depending on the tenure for which we as investors want to invest.
5.Capital Small Finance Bank
| Type of Account | Rate of Interest |
| Savings Bank Account without Cheque Book Facility | 4 % |
| Savings Bank Account with Cheque Book Facility | 4 % |
| Basic Savings Bank Account (Suvidha Bachat) | 4 % |
| Fixed Deposit Tenure Slab | Rate of Interest |
| Fixed Deposit Tenure of 15 to 30 days | 5.25 % |
| Fixed Deposit Tenure of 31 to 45 days | 5.75 % |
| Fixed Deposit Tenure of 46 to 89 days | 6.50 % |
| Fixed Deposit Tenure of 90 to 179 days | 6.85 % |
| Fixed Deposit Tenure of 180 days to less than 1 year | 7.15 % |
| Fixed Deposit Tenure of 1 year to less than 5 years | 7.65 % |
| Fixed Deposit Tenure of 5 years to 10 years | 7.50 % |
| Fixed Deposit Tenure of 400 days | 7.85 % |
| Fixed Deposit Tenure of 900 days | 7.75 % |
The rate of interest offered by Capital Small Finance Bank in a savings account is 4% for different types of savings account opened by us.
The rate of interest for a fixed deposit ranges from 5.25% to as high as 7.75% depending on the tenure for which we as investors want to invest.
Above given are the interest rates for savings and fixed deposits of small finance banks. Interest rates for different amounts kept in the savings account are given.
Also, the rate of interest for different tenures of fixed deposit is shown above. We as investors should compare the interest rates in different tenures and accordingly invest in the fixed deposits of these small finance banks if we want.
The tenure for which we want to invest by keeping in mind the liquidity constraint is very essential in choosing the right fixed deposit.
Challenges Faced
1.Fear Among Investors
Despite higher interest rates offered by small finance banks, many people remain cautious of opening fixed deposit accounts with them fearing the stability of such banks.
People do not know that just like other commercial banks, small finance bank depositors are also covered under the depositor insurance program of the DICGC and up to Rs. 1 lakhs invested by an investor is insured in those small finance banks that come under DICGC.
2.Lack of Awareness
There is a lack of awareness among retail investors about the higher interest rate offered by these small finance banks.
3.Accessibility
Many retail investors avoid investing in these banks because of the unavailability of bank branches near their place of residence.
Conclusion
If we are willing to invest our savings into fixed deposits of these small finance banks then we can diversify our portfolio by investing in it.
We have the option to compare the interest rates offered by different small finance banks by going through the interest rate charts given above and then decide for ourselves which bank to open a savings account or fixed deposit accounts in.
Happy Investing!
Disclaimer: The views expressed in this post are that of the author and not those of Groww