Senior citizens, these banks offer 9% plus interest on FDs – Should you park your money there?

• FD interest rates of over 9% for senior citizens are offered mostly by small finance banks.
• These interest rates are on offer for specific tenures, which vary from bank to bank.
• Deposit Insurance and Credit Guarantee Corporation (DICGC) insurance cover of up to ₹5 lakhs that applies to all scheduled commercial banks, applies to small finance banks too.

Fixed deposits (FDs) are a popular product because they offer guaranteed returns for a fixed tenure. Senior citizens too prefer FDs for safety, stability, and guaranteed returns. Apart from providing fixed returns, they are easy to understand, offer liquidity options, and may provide tax benefits in some cases.

We have seen a series of interest rate hikes over the last 12 months or so, and FD rates have also gone up as well. While scheduled commercial banks like SBI, HDFC, Axis Bank, and others provide FD interest rates between 6.5% and 7.5%, rates for senior citizens are 25 to 50 basis points higher. Currently, some small finance banks are offering senior citizen FDs at interest rates of over 9%. We take a look.

Unity Small Finance Bank: This bank is offering FDs for senior citizens at 9.25% for a period of greater than 6 months to 201 days, and for a period of 501 days. For a period of 1,000 days, the interest rate offered is 9.5%.

Jana Small Finance Bank: For a period of 366-499 days, 500 days, and 501 days to 2 years, this bank offers 9% interest on FDs.

ESAF Small Finance Bank: This bank offers 9% interest rate on FDs for senior citizens for a period of two years to less than three years.

North East Small Finance Bank: The bank, which is present in North Eastern states, and in West Bengal, offers senior citizen FDs at 9.35% interest rates for 555 days, and 1,111 days special schemes.

Suryoday Small Finance Bank: Suryoday Small Finance Bank provides an interest of 9.6% for senior citizen FDs maturing in 5 years. Since they mature in 5 years, they are eligible for tax deductions under section 80C of the income tax act.

What to keep in mind

All the banks who are offering high interest rates on FDs for senior citizens, are small finance banks. One may be slightly wary of parking their money in these FDs, as these banks are not well known. However, just like any scheduled commercial banks under the Reserve Bank of India (RBI), small finance banks come under the purview of the RBI as well.

“They have to follow the guidelines set by the RBI. With regards to risk of losing money, the same DICGC insurance cover of up to ₹5 lakhs that applies to all scheduled commercial banks, applies to small finance banks too,” says Arijit Sen, a SEBI-registered investment advisor, and co-founder of Merry Mind, a financial advisory firm.

Therefore, your deposits, including FDs in small finance banks are equally insured under DICGC, for up to ₹5 lakh per bank per depositor in the event of any bank failure/default.

However, in case of bank default, getting back your money under the DICGC scheme might be a time consuming and tedious process, as was the case with PMC Bank which defaulted in 2019.