Should You Prefer Smaller Banks for Fixed Deposit Investment?
Fixed deposit is one of the best saving instruments to obtain higher interest after the maturity date. Many choose Fixed Deposit over other saving methods as it offers safety and surety of returns.
In recent days, well established-banks have lowered the interest rate on Fixed Deposit schemes and on the contrary the new and small banks provide higher interest rate. If you are wondering whether the Fixed Deposit investment in a smaller bank is the right choice, this article will help you analyse the most viable options.
Difference in Interest Rate
SBI, one of the largest lenders in India, has lowered the interest rate on FD substantially since 2015. Similarly, other old and large banks offer interest rate ranging between 6 to 7 percentage. Interestingly, the new and small banks offer high interest rate up to 9.05 percentage to woo the customers.
Reasons for the Difference
Bigger banks already have a huge amount of customer base and they have different ways to build its customer strength. Meanwhile, the small banks find it difficult to source funds and according to the new rule, they should reduce inter-bank borrowing.
With attractive interest rate, the smaller banks look forward to increasing their source for funds. As Fixed Deposit is a risk-free instrument with a guaranteed return, individuals can opt for small lenders.
Which Is Better?
A large bank usually has a good customer service and safety facilities when compared to a small bank. With large number of branches, the bigger lenders can be reached with ease while the new banks are not established in interior regions.
However, when it comes to FD investment, the surety of return is almost the same across all banks. Your maximum investment of 1 lakh can be covered by an insurance. Hence even if your bank gets liquidated or merged with another bank, you will be paid your insured amount.
Another important point to note is that you can choose the bank where the interest is compounded monthly or quarterly. Shorter terms bring you a regular income.
Fixed Deposits have gained popularity over the times due to its attractive returns. New banks may offer high interest rate, but do not be overwhelmed by it, evaluate the risks attached to the lender and the terms and conditions.
In case you have a huge amount and you want a risk-free return, you can split the amount and invest in various banks. This will guarantee a regular stable income and protect the investments during times of interest rate fluctuations