Rate of return on fixed deposits of small finance banks is better than the FDs offered by traditional commercial banks.
Small finance banks (SFBs) aim to spread financial inclusion by provision of savings vehicles and supply of credit to small business units, small and marginal farmers; micro and small industries; and other unorganised sector entities. The target of SFBs is to run high-technology low-cost operations. They offer higher interest rates than mainstream commercial banks. Lenders like State Bank of India (SBI), HDFC Bank and ICICI Bank are prominently known but it is actually SFBs like ESAF Small Finance Bank, AU Small Finance Bank and Utkarsh Small Finance Bank, which offer better interest rates.
Fixed deposits, which require customers to park their funds with a bank until a specific period of time, offer guaranteed returns. However, the rate of return on fixed deposits of small finance banks is better than the FDs offered by traditional commercial banks.
For example, SBI, the largest lender of the country, offers 6.80 per cent interest on a fixed deposit with tenure of one to less than two years. ESAF Small Finance Bank offers 8.75 per cent interest on a fixed deposit of 365-727 days; AU Small Finance Bank pays an annual return of 8.25 per cent on a fixed deposit of 13 months one day to 18 months; and Utkarsh Small Finance Bank offers 8.5 per cent annual rate of interest on a fixed deposit of one year to 455 days.