FD rates up to 8.35%: Small finance banks vs NBFCs vs big banks — where should you invest?

Fixed deposits (FDs) remain a popular investment option for savers seeking predictable returns, but the interest rate offered can vary significantly across small finance banks, non-banking financial companies (NBFCs) and large commercial banks. While select institutions offer rates of up to 8.35% for senior citizens, investors should look beyond headline returns and compare deposit safety, tenure, liquidity and taxation before choosing an FD.

Small finance banks and NBFCs generally feature among the higher-yielding options, while large banks may offer lower rates. However, the highest advertised rate may apply only to a specific tenure or investor category, making it important to compare like-for-like deposits.

How do FD rates compare?

The following figures are indicative rates from the available spreadsheet and have not been independently verified against current institutional rate cards. Investors should check the applicable rates before booking a deposit.

The spreadsheet lists Jana Small Finance Bank’s maximum rates at 8% for regular depositors and 8.3% for senior citizens. Shivalik Small Finance Bank is listed at up to 8% and 8.25%, respectively, while Shriram Finance offers up to 8.35% for senior citizens on select tenures. These maximum rates should not be confused with the rates applicable to every deposit period.

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Why deposit insurance matters

The key distinction between bank FDs and NBFC deposits is the protection available if an institution fails. Eligible deposits with insured banks, including small finance banks, are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5 lakh per depositor per bank, including principal and interest, in the same right and capacity.

NBFC fixed deposits do not have DICGC insurance. Investors should therefore examine the NBFC’s credit rating, financial position and repayment record rather than relying solely on the interest rate. Credit ratings can help assess risk but do not guarantee repayment.

Should you choose a one-, three- or five-year FD?

A one-year deposit may suit investors who expect to need their money relatively soon. A three-year FD can offer a balance between locking in returns and retaining flexibility, while a five-year deposit may suit longer-term goals if the rate and withdrawal conditions are attractive.

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Premature withdrawal rules matter across all tenures. Closing an FD early may trigger a penalty or reduce the interest payable. Investors should check whether partial withdrawals are permitted and maintain separate emergency savings.

What about tax?

FD interest is generally taxable according to the investor’s applicable income-tax slab. Tax may be deducted at source when the relevant conditions and thresholds are met, but TDS is not necessarily the final tax liability. The post-tax return, rather than the advertised rate alone, should guide comparisons.

Ultimately, investors should choose an FD based on their time horizon, liquidity requirements and tolerance for institutional risk. A higher rate can improve returns, but it should not outweigh deposit protection, financial strength and access to money when needed.