When you want to invest money in a fix deposit (FD), the first thing that comes in anyone’s mind is interest rate. But, you will always notice that smaller financial institutions usually provide higher interest rates higher interest rates on FDs than bigger banks. Following are the few reasons behind it:
Few popular Fixed Deposits
If you compare FD rates, the country’s largest lender, SBI gives 9% interest rates on FDs below Rs.1 crore of one-two year tenure. The second largest lender ICICI offers 8-9% on term deposits for similar tenure. Now, let us analyze what smaller banks have to offer. Laxmi Vilas Bank Ltd offers 9.75% on a fixed deposit of for a similar period, whereas City Union Bank Ltd earns you 9.50% for a similar period.
Why the difference?
Analysts argue that smaller banks find it difficult to source funds. An avenue to create a money market for them is expensive. On the other hand, larger financial institutions have a better command in market since they have better credit ratings. The cost of raising funds for them through short-term paper is difficult for them. Secondly, being smaller institutions they have smaller retail base. Therefore, they try to attract customer more.
However, choosing a term deposit should not be based only on attractive interest rates. The banking services should be also looked when the investment is long-term specifically. So, if your financial institution is liquidated, you get your ensured amount.
Few popular Fixed Deposits
If you compare FD rates, the country’s largest lender, SBI gives 9% interest rates on FDs below Rs.1 crore of one-two year tenure. The second largest lender ICICI offers 8-9% on term deposits for similar tenure. Now, let us analyze what smaller banks have to offer. Laxmi Vilas Bank Ltd offers 9.75% on a fixed deposit of for a similar period, whereas City Union Bank Ltd earns you 9.50% for a similar period.
Why the difference?
Analysts argue that smaller banks find it difficult to source funds. An avenue to create a money market for them is expensive. On the other hand, larger financial institutions have a better command in market since they have better credit ratings. The cost of raising funds for them through short-term paper is difficult for them. Secondly, being smaller institutions they have smaller retail base. Therefore, they try to attract customer more.
However, choosing a term deposit should not be based only on attractive interest rates. The banking services should be also looked when the investment is long-term specifically. So, if your financial institution is liquidated, you get your ensured amount.
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