Looking for higher FD returns? Expert on why small finance banks are crushing the competition

With interest rates stabilising in 2025, savers across India are hunting for ways to grow their wealth without venturing into risky investments. And one segment has emerged as a consistent leader in offering attractive returns: Small Finance Banks (SFBs). These niche banks continue to top the charts for fixed deposit (FD) interest rates, making them a compelling choice for those looking to boost their savings safely.

Small Finance Banks are institutions created with a specific mission—to cater to retail customers and underserved sections of society, such as small businesses, low-income households, and marginal farmers. To attract deposits, they often offer significantly higher FD interest rates than traditional banks. “Small Finance Banks are still offering some of the highest fixed deposit interest rates in the market right now, going up to 8.80% p.a. in some cases,” says Vineeth K, founder of Deals Dhamaka.

In 2025, many SFBs continue to offer rates well above those of larger public and private sector banks, especially for mid- to long-term tenures ranging from one to five years. This makes them an appealing option for investors seeking stable returns without venturing into volatile market-linked instruments like mutual funds or stocks.

Vineeth points out several advantages of parking your money in SFB FDs. “These banks are regulated by the Reserve Bank of India (RBI), and deposits up to ₹5 lakh are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme,” he explains. “For people planning short- to medium-term savings, SFBs can be a smart way to earn more interest.”

However, higher returns come with some caveats. While SFBs are regulated and insured, they operate with business models focusing on niche segments that can expose them to higher credit risk. “They often lend to customers who don’t qualify for loans from larger banks, which could make them slightly more vulnerable during financial stress situations,” Vineeth cautions.

That said, for deposits up to ₹5 lakh—the maximum covered by DICGC insurance—there’s a layer of safety even if the bank were to face trouble. Investors looking to deposit higher sums should research the bank’s financial health, track record, and credit ratings before investing.

So, should you opt for an SFB FD over a traditional bank FD? For investors who want to maximise returns without risking their capital in market-based investments, SFBs can indeed be a good bet. “The gap between SFB FD rates and traditional bank FD rates is significant enough that it’s worth considering, especially for tenures between one and three years,” experts noted.

Still, he advises caution. “Don’t chase the highest rate blindly. Evaluate the bank’s reputation and financials, and spread your investments across institutions to lower risk,” experts explained.

Ultimately, Small Finance Bank FDs remain one of the most attractive options for savers in 2025. They strike a balance between offering higher returns and maintaining relative safety for smaller deposits—a rare combination in today’s financial landscape. For those seeking higher yields without entering the stock market’s unpredictable waters, SFBs could be just the solution.

FD rates with Small Finance Banks

Attractive Returns: Small finance banks often deliver higher fixed deposit (FD) interest rates than traditional commercial banks, making them appealing for investors seeking better yields.

Tenure-Based Rates: FD interest rates vary depending on the deposit term. Typically, longer tenures attract higher returns, offering investors flexibility based on their financial goals.

Perks for Senior Citizens: Many small finance banks offer an extra interest rate premium to senior citizens, boosting their potential earnings on deposits.

Sample Interest Rates:

Ujjivan Small Finance Bank FD Rates range from 3.75% to 9.00% 

Jana Small Finance Bank FD Rates range from 3.10% to 9.10%

Equitas Small Finance Bank: Provides rates from 3.50% to 9.00%

AU Small Finance Bank: Offers 3.75% to 8.00% to regular to senior citizen customers

ESAF Small Finance Bank: Provides rates from 4.00% to 8.75%