These bank FDs give 9% to 9.50% returns to senior citizens, what to invest?

Latest FD Interest Rates of Banks

Amidst the rising interest rate regime, Punjab and Sind Bank tops the list of public sector banks, offering an interest rate of 8.50% per annum to senior citizens and 8% to the general public. It is followed by Central Bank of India, which has a maximum interest rate of 7.35% for non-senior citizens and 7.85% for senior citizens. The maximum interest rate on domestic fixed deposits offered by public sector banks currently ranges from 7% to 8% for general public and 7.50% to 8.50% for senior citizens. While Bandhan Bank and Tamil Nadu Mercantile Bank are now offering the highest interest rates among private sector banks, at 8% for general public and 8.50% for senior citizens, respectively, according to data compiled by BankBazaar.

But till now two small finance banks are providing the highest FD rates in the country. Utkarsh Small Finance Bank (SFB) is now offering a maximum interest rate of 8.25% for general public and 9.00% for senior citizens on deposits with a tenure of 700 days. Specifically in comparison, Unity Small Finance Bank offers a maximum interest rate of 9.00% for general public and 9.50% for senior citizens for a tenure of 1001 days. In addition, the bank offers regular rates of 8.75% and 9.25% for senior citizens on two specific tenures of 181-201 days and 501 days respectively.

Should investors invest in Small Finance Bank FDs?

Yash Joshi, Co-Founder and Director, Uppercrest Wealth, said, “Senior citizens who are considering investing in Small Finance Bank FDs that offer 9% returns should carefully consider the risks involved before making any investment decision Must know. The primary risk involved in investing in Small Finance Bank FD is credit risk. Small finance banks operate with a smaller deposit base and may be at higher risk of default than larger banks. Hence, it is important to check the credit rating of the bank before investing in your FD. Senior citizens should only invest in Small Finance Bank FDs that have a good credit rating.”

“Another risk involved in investing in small finance bank FDs is liquidity risk. These banks may have a limited branch network and may not be easily accessible to senior citizens in case they need to withdraw their funds. Hence, senior citizens should consider their liquidity needs before investing in Small Finance Bank FD. An alternative investment option for senior citizens looking for better returns would be debt mutual funds. These funds invest in fixed-income securities such as bonds, debentures and government securities. Debt mutual funds offer higher returns than bank FDs, and the returns are tax-efficient for investors who are in a lower tax bracket. However, it is important to note that debt mutual funds carry higher risk than bank FDs and require a higher level of understanding,” said Yash Joshi.

“In conclusion, senior citizens who are considering investing in Small Finance Bank FDs which offer 9% returns should be aware of the risks involved. They should consider credit rating and liquidity needs before making any investment decision. An alternative investment option for senior citizens would be debt mutual funds, but it requires a higher degree of understanding and carries a higher risk. It is advised to consult a financial advisor before taking any investment decision,” Yash Joshi added.

Ravinder Voomidisingh, COO, CFA, IndiaP2P, said, “Deposits up to Rs 5 lakh are guaranteed, so FDs up to this amount can be considered safe in SFBs. For large deposits, we must understand that while SFBs are banks, they are different from full fledged banks. As per RBI, 75% of the credit extended by SFBs is required to be priority sector lending and 50% of the loan portfolio should be loans under Rs 25 lakh. Whereas, full fledged banks are required to lend 40% to the priority sector. Therefore, given less diversification, portfolios of SFBs tend to be more volatile. Full-fledged banks are also more likely to be bailed out by the RBI in the event of a crisis to contain systemic risks. While investing up to Rs 5 lakh is a worthwhile option, those with larger savings can explore higher return and higher risk options such as bonds, P2P lending etc., which can provide predictable and often even monthly returns.”

Abhinav Angirish, Founder, Investonline.in said, “Bank fixed deposits and small savings plans offer pathetic, and in some cases negative, real rates (also known as inflation-adjusted returns). If you think As a senior citizen, you would be dissatisfied.Moreover, the higher the interest, the higher the returns. 50,000 annually is subject to taxation under the head “Income from other sources” depending on your tax bracket.

“Only those people who wish to stay outside the confines of the Indian capital market should consider investing in fixed deposits. For investors, especially those falling in the 30% tax bracket, fixed deposits are the least tax-efficient option. If you rely solely on fixed income investments as a retiree, you may not be able to comfortably fund your retirement. You will feel the increased cost of living, especially in Tier I or metro areas. Seniors should invest 25-30% of their investment portfolio in equity through diversified equity-oriented mutual funds to offset the rising cost of living,” said Abhinav Angirish.

“Consider diversifying your holdings wisely by choosing from top large-cap funds, multi-cap funds and aggressive hybrid funds. Instead of choosing schemes based solely on past results, which may not predict future returns, consider a wide range of quantitative and qualitative factors. Also know the investment philosophy, processes and systems of the mutual fund house. This will give you the ability to take a calculated risk, make a wise decision and generate maximum returns possible,” Abhinav Angirish added.

Commenting on small finance banks offering fixed deposit interest rates of over 9%, Satyen Kothari, Founder and CEO of Cube, said, “Senior citizens should avoid investing large sums of money in small finance banks. This is because while the chances of losing money are quite low, there is still a possibility that their money could get stuck. Due diligence and diversification are not at par with other products and the risk is not commensurate with the return. Roughly such products should account for only 5-10% of your portfolio. The majority of your portfolio should be in equities. India is set to become the 4th largest GDP by 2024, making the next 5-6 years the right time for equities.”

Harsh Gahlot, CEO, Finage said, “When it comes to fixed income investing, we follow a simple belief – “Return of capital” is more important than “Return on capital”! While a lot of small finance banks like Unity, Suryoday, Utkarsh, Equitas and Fincare are offering 100-150 bps higher interest rates than FDs of comparable tenure from top PSU and private banks, we suggest you look into them at steep discounts Give , Sure, the chances of default are very low and there is a DICGC guarantee of 5 lakhs, but it is an incremental risk that is not worth taking for such a small additional payout, especially for a senior citizen.”

“In fact, a debt fund that invests in GILT’s and SDL’s with a 4-5 year roll down strategy will provide you better tax adjusted returns than a small finance bank FD at this point in time, though their NAVs over time may fluctuate depending on the maturity of the underlying. As a general rule, please educate yourself thoroughly and take advice from a competent advisor before investing in any mutual fund, as debt funds Completely different from fixed deposits,” Harsh Gahlaut added.

Nirav Karkera, Head of Research, Fisdom, said, “As with every other investment vehicle, incremental returns often compensate for incremental risk. Within the fixed income category, such risk may arise in the form of credit, duration or liquidity risk. From an overall risk perspective, most small finance banks are relatively riskier than large scheduled commercial banks. Investors should be aware of these dynamics and invest as per their investment objective and risk profile. There are many options like dynamically managed, duration-based and strategy-based fixed income mutual funds which can be good for investors.”

Sagar Lele, Wealthbasket curator and founder of RupeeTing said, “Small finance banks offer higher rates than large commercial banks to attract deposits. As small finance banks grow larger over the next few years, their fund The cost of deposits will come down, and so will their deposit rates. The current disparity provides an opportunity to lock in higher rates. However, this opportunity needs to be limited.”

“Smaller banks are subject to higher risk in case of economic downturn, and are exposed to relatively higher risk on governance, management standards, risk management and operations as compared to larger peers. That said, deposits made with small finance banks are also covered under DICGC, an arm of the RBI that insures all bank deposits up to Rs. 5 lakhs. Hence one can invest up to Rs. 5 lakh and consider the principal amount and interest risk-free. Sagar Lele further added, “A good strategy could be to spread the FD exposure across a number of small finance banks, while also fixing an overall limit of exposure for them.”

As Ashok Chhajer, CMD, Arihant Superstructures said, “High rate risk is high. However, it does not mean that they will fail on commitments. Which specific small payments banks are safe to invest in and why such banks have a small It is better to take professional advice on whether the share can be allotted. Smaller banks like AU Bank and many are doing well.”

Vishal Vij, Founder and Managing Partner, Nesteg, said, “Though the fixed deposit rates offered by small finance banks are attractive, they come with a high risk of default. 5 lakh per small finance bank, as this amount is insured under the DICGC Act of 1961. DICGC guarantees a maximum of 5 lakh, including both principal and interest, to each depositor.”

Gautam Kalia, SVP and Head Super Investor at Sharekhan by BNP Paribas, said, “Higher YTM or interest rates come with lower credit quality (higher risk). Generally speaking, protection of principal is paramount for senior citizens, they Should go for high quality debt. Mutual funds do not offer special interest rate benefits to senior citizens, but investors can allocate some funds to corporate bond funds.”