Is your Fixed Deposit (FD) safe? Know what happens to investment in small banks offering high returns

Fixed Deposit (FD) interest rates have increased recently, thereby enticing investors. Several small and new banks are offering more returns on the FDs than even larger banks like the SBI, HDFC, PNB, ICICI, Bank of Baroda etc. High return rates promised by small players does ring alarm bells about the safety of the deposits in the minds of people. However, there is no need to worry. 

Experts say that FDs in new and small banks offering high rates are safe as they are also regulated by the Reserve Bank of India. Naveen Kukreja, CEO and co-founder of Paisabazaar.com, recently told DNA Money, "As with other bank categories, the SFBs too are well regulated by RBI and have to follow the guidelines set by RBI related to lending and other parameters. They, too, come under the umbrella of scheduled commercial banks (SCBs), which entitles their depositors to a deposit insurance of Rs 1 lakh from Deposit Insurance and Credit Guarantee Corporation (DICGC) in case of bank failure. The insurance cover includes savings, current, fixed and recurring deposits." 

The high rate of interest on FDs offered by small banks may not be a long-term phenomenon though. At present they are trying to build a war chest of war deposits. Hence, they are offering high rates. 

Many small banks are offering FD rates up to 8.5% on certain terms. 
-  IDFC Bank provides 8.00% interest on Fixed Deposits for 731 days; 8.25% on deposits for terms 3-2 years, 5-8 years, and 8-10 years. 
- Deutsche Bank provides 8.25% interest rates to both senior and general citizens on five-year term deposits.
- Equitas Small Finance Bank provides 8.00% interest rate on FDs for 1 year to 18 months term. 
- Bandhan Bank provides an additional 0.75% interest rate to senior citizens even on deposits offering upto 7.4% interest. 
- Jana bank is offering one of the highest interest on FDs at 8.5% on deposits for 366 days. 
- AU Small Finance Bank offers 8.00 interest for 45-60 months term deposits.

Money Guru: know the benefits of fixed maturity plans and fixed deposits

Presently, the interest rate for a one-year FD in SBI is 6.7%. Most of the large banks provide FD rates up to 7.5% per cent on several term deposits.