8.5% FD vs 7% FD: How much extra can senior citizens earn on ₹10 lakh, ₹25 lakh, ₹1 crore?

Senior citizens looking to invest in fixed deposits (FDs) may be leaving a significant amount of money on the table if they stick to their existing bank without comparing interest rates. While most large public and private sector banks currently offer senior citizen FD rates of around 7%, several small finance banks (SFBs) are paying up to 8.5% on select deposit tenures.

That 1.5 percentage point difference may appear small, but over larger deposits, it can translate into lakhs of rupees in additional interest.

According to Paisabazaar data as of July 15, 2026, Equitas Small Finance Bank and Shivalik Small Finance Bank offer the highest senior citizen FD rate of 8.5%, followed by Jana Small Finance Bank and Ujjivan Small Finance Bank at 8.3%. ESAF, Suryoday and Utkarsh Small Finance Banks offer 8.25%, while DCB Bank is the only private sector bank currently offering 8%.

In comparison, most large lenders offer substantially lower returns. SBI pays 7.05%, HDFC Bank 7%, ICICI Bank 7.10%, Axis Bank 7.25%, while the highest rate among PSU banks is 7.45% from Bank of India.

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How much difference does 1.5% make?

The table below compares annual interest earnings at 7% and 8.5%. (Simple annual interest before tax.)

For retirees who rely on FDs to supplement their monthly income, the difference is meaningful. A ₹1 crore deposit at 7% generates about ₹58,300 a month before tax. At 8.5%, the same investment earns nearly ₹70,800 a month, translating into an additional ₹12,500 every month.

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Banks offering the highest senior citizen FD rates

The best rates aren't on five-year FDs

Interestingly, the highest interest rates are generally available on deposits with maturities between 24 and 36 months, rather than the traditional five-year tax-saving FD.

For example, Equitas SFB offers 8.5% on a three-year-one-day deposit, Jana SFB offers 8.3% on deposits above two years and up to three years, while Shivalik SFB pays 8.5% on deposits between 23 and 27 months.

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Should you simply choose the highest rate?

Not necessarily.

Financial planners advise senior citizens to evaluate more than just the headline interest rate. Factors such as the bank's financial strength, liquidity needs, premature withdrawal rules and deposit insurance should also influence the decision.

Deposits with small finance banks are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for up to ₹5 lakh per depositor per bank, including both principal and accrued interest. The same insurance limit applies to commercial banks as well. Investors with larger sums may consider spreading deposits across multiple banks to remain within the insurance limit.

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Fixed deposits continue to offer safety, predictable income and capital protection, making them an important component of retirement planning. However, with inflation continuing to erode purchasing power, financial advisers recommend using FDs as part of a diversified portfolio rather than relying on them exclusively for long-term wealth creation.