Fixed Deposit: What to look for while investing in FDs of Small Finance Banks

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Interest rates provided by all small finance banks (SFBs) on fixed deposits are relatively higher compared to other investment options.

Fixed Deposit (FD) is a term that every Indian relates to as the most secure and safe investment option. FD guarantees the customer an assured return. Most importantly, an investment in the form of fixed deposit is not subject to market risk and is especially suited for those with a low-risk appetite. Fixed deposits had lost their gleam to other asset classes with higher returns driven by stock market movements, which are subject to volatility owing to the ups and downs of the market.

Aiming at increasing the banking outreach and financial inclusion, the government introduced a new category banking in the form of Small Finance Banks in order to attract customers to place deposits. Interest rates provided by all small finance banks (SFBs) on fixed deposits are relatively higher compared to other investment options. All SFBs aim at providing the best banking solutions to the unbanked and underbanked communities so that they are not deprived of any products and services which are enjoyed by other bank customers. These high-interest rates are a way of motivating this segment to start investing in a safe option rather than keeping their hard-earned money in lockers at home. SFBs are also making use of the latest technology in order to provide a seamless experience to their customers and making their lives easier in all ways possible. The deposits are used to fund small-ticket loans to the unserved and underserved mass market customers. This has helped millions of such customers provide better lives for their friends and families.

The unbanked population in India is in dire need to have a safe place to save their money and fixed deposit is the most attractive investment for them to meet their long-term financial goals. Small finance banks offer interest rates which are as high as 9 per cent on fixed deposits. Earlier, this segment used to feel intimidated and disrespected while encountering the present banking system and a major aim of a small finance bank is to make banking a part of their lives and get them accustomed to it. Often you see a large number of educated people also who never use banking facilities, in spite of having bank accounts, the major reason being lack of knowledge about banking facilities and their advantages. Hence, I feel there should be some formal institutions that educate these people about the need to invest money in a proper financial institution and how to manage their finances. Through the Parinaam Foundation’s Diksha programme, we educate those customers who we feel the need for guidance in managing their finances.

Another important thing for a customer is to not just give importance to the rate of interest that the bank is providing but also observe the kind of services being provided which other financial institutions are unable to provide. As an example, we provide services such as doorstep banking, digital & hassle- free banking, less documentation, etc, that help a customer in multiple ways.

Also, considering the market volatility, it is the right time to open a fixed deposit account and lock in your money for at least 1-2 years for better and guaranteed returns. It is advisable to allocate your maximum finances in those financial institutions where one can get assured returns and excellent service.