Most people prefer to invest in a fixed deposit or savings account as it is a low-risk investment tool and it helps them diversify their portfolio. That said, picking the right bank to open an FD account can be a task. The primary driver for an investor to open an FD account is the interest rate. Investors are most likely to put their money in a bank that gives them the highest interest rate. But the rate offered by big banks has been falling for some time. In such a situation what should you do?
According to data compiled by BankBazaar, a neutral marketplace for financial products, newer and smaller private banks are offering higher interest rates when compared to bigger and established players.
The data showed that small finance banks like AU Small Finance Bank, Equitas Small Finance Bank and Ujjivan Small Finance Bank were offering interest rates up to 7%. Others like the DCB bank give up to 6.75% interest rate, followed by RBL Bank (6.25%) and Bandhan Bank (6%).
These interest rates are higher compared to top private and public sector banks like HDFC Bank, ICICI Bank and Axis Bank which offer interest rates in the range of 3 to 3.5 %. While the Kotak Mahindra Bank offers an interest rate up to 4%, the State Bank of India (SBI) is giving an interest of 2.70 %. Bank of Baroda is offering up to 3.20 % percent interest.
However, there’s a catch. The minimum balance requirement for smaller private banks is usually higher than their larger counterparts. The minimum balance requirement in a big bank can be as low as Rs 500 but it could be Rs 2,000 for AU Small Finance Bank. Experts say the smaller banks keep the requirement high because they want to tap the salaried middle-class and self-employed professionals. They advise people to choose a bank that has a wide network and a good service record when opening a savings bank account.