Earn more on your FDs

Higher interest rates and low risk make Equitas Small Finance Bank an attractive option

You can earn more on your fixed deposits (FDs) by choosing to park them in small finance banks (SFBs) than in traditional banks. SFBs, being new entrants in the market, offer higher interest rates than many traditional banks to increase their deposit base.

A few non-bank financial companies (NBFC) offer relatively higher interest rates than SFBs. But investors are wary of NBFC deposits on account of ongoing IL&FS crisis, recent concerns over Dewan Housing Finance (DHFL) and other factors.

Further, NBFC deposits do not carry any insurance cover. SFB deposits are covered by the Deposit Insurance and Credit Guarantee Corporation of India and each depositor is insured up to ₹1 lakh for both principal and interest. Also, SFBs are subjected to all prudential norms and regulations of the RBI as applicable to commercial banks. This makes deposits with SFBs a good choice for investors with low-risk appetite.

Equitas Small Finance Bank, which offers 8.8 per cent on deposits with a tenure of two-year one-day to three-year, is a good option for investors.

Higher interest rates

With the recent rate cut by the RBI, interest rates may continue to moderate in the near future. At this juncture, it may be worthwhile locking into deposits for a two to three-year time period. The tenure is short enough to cash in on rate hikes over the medium term while long enough to reduce reinvestment risk.

In the two to three-year bucket, many SFBs offer attractive interest rates in the range of 8.5 to 9 per cent. While most public sector banks offer 6-7 per cent interest rate for this bucket, some private sector banks give up to around 8 per cent for the same period.

Equitas SFB’s interest rate of 8.8 per cent for a deposit with a tenure of two-year one-day to three-year is among the best provided by SFBs. Even the bank’s 18 months one- day to two-year deposit that offers 8.75 per cent is a good offer.

The minimum amount for an FD in the bank is ₹1,000. It offers the customer an option of quarterly pay-out or re-investment (cumulative interest). The rate of interest remains the same in both cases. An investor who is not in need of regular income can go for the re-investment option as it increases the yield(9.09 per cent for a two-year one-day to three-year deposit), since the interest is re-invested on a quarterly basis.

Senior citizens will get an additional 0.75 per cent interest over and above the FD rates, making the rate of interest, 9.55 per cent for a two to three-year tenure. Other advantages with FD at Equitas SFB include ease of opening the deposit due to a wide network with 392 banking outlets across 14 states. Also, a customer does not have to maintain a savings account to open an FD.

Further, the bank allows partial premature of FD for which penalty is not applicable if the FD has completed a tenure of six months or above.

However, the interest rate applicable for deposits on premature closure will be lower of the rate applicable for the original tenure or the rate applicable for the tenure for which the FD is in force.

About the company

Equitas Small Finance Bank commenced its banking operations in September 2016 and is now spread across 14 states. The bank mostly finances used commercial vehicles, micro, and small enterprises and the affordable housing segment.

The bank has recovered from the after effects of demonetisation. The bank’s GNPAs in the recent December 2018 quarter came down to 3.15 per cent from 4.95 per cent during the same quarter last year. Advances for the bank grew by 41 per cent YoY in the December quarter.

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