Keeping an account in a small finance bank is usually not the first option among small investors. Some depositors, however, tend to maintain a spare bank account in small finance banks simply because they offer a higher rate of interest on fixed deposits when compared to big commercial names.
There is evidently not a big difference between a big commercial bank and a small finance bank when it comes to savings bank deposits.
However, there is a noticeable difference (in the range of 0.85 to 1.1 percent per annum) in the rates of fixed deposits between the two sets of banking corporations. While the big banks offer around 5 percent on their fixed deposits per annum, the small finance banks offer around 6 percent.
There are several small finance banks in the country, including the following:
AU Small Finance Bank: It offers a fixed deposit interest at the rate of 5.85 percent for one year and 6 percent for two years.
Equitas Small Finance Bank: It also offers an interest at the rate of 5.85 percent on one-year deposit and 6 percent on two-year deposits.
ESAF Small Finance Bank: It offers 6.25 percent on its one-year deposits and 6 percent on two-year deposits.
Capital Small Finance Bank: It offers 6 percent per annum on its one year and two year deposits.
On the other hand, state lender State Bank of India (SBI) offers 5 percent on its one-year fixed deposit and 5.1 percent on its two-year fixed deposits. Likewise, HDFC Bank offers an interest of 4.9 percent per annum on its fixed deposits for one year as well as two years.
If you deposit ₹3 lakh in an FD in a small finance bank for two years, then the rate of interest offered is usually ₹6 percent that makes the total interest ₹37,080 (after compounding before tax).
On the other hand, SBI pays 5.1 percent per annum on its fixed deposit, so a deposit of ₹3 lakh would fetch you ₹31,380 (after compounding before tax).
So, you can earn an extra ₹5,700 on a small deposit of ₹3 lakh in two years. Although the difference is not substantial, considering that it is pre-tax, but on larger deposits, it can be a noticeable difference.