Small Finance Bank FD Rates: There are several small finance banks in the country offering interest rates on fixed deposits as high as 9%. These rates are certainly higher compared to large public or private banks. Therefore, for investors looking to earn higher returns through safe investments, fixed deposits in small finance banks can be an attractive option.
However, while making such deposits, it is important to understand their tenure (lock-in period) and the safety of deposits in these small banks. And today we are going to learn exactly that.
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What are Small Finance Banks?
Small finance banks are small banks started to promote financial inclusion. The Reserve Bank of India (RBI) granted licenses to such banks around 2015. These banks can provide all basic services like regular commercial banks, such as savings accounts, current accounts, fixed deposits (FDs), recurring deposits, and various types of loans.
After meeting certain criteria, these banks are granted scheduled bank status, which means the deposits are protected under regulations just like other banks. Currently, Unity Small Finance Bank, Ujjivan SFB, Suryoday SFB, Utkarsh SFB, Slice SFB (formerly North East SFB), and others are operational in India.
Why do Small Finance Banks offer higher interest rates?
Compared to large and established banks, small finance banks offer higher interest rates on deposits. The main reason for this is that these new banks need to attract customers and deposits to grow their business. Since their deposit base is relatively small, they require more funds for loan distribution.
Therefore, to attract depositors, these banks can offer 1-2% higher interest than large banks. For example, currently, many large banks offer FD interest rates of around 6% to 7%, whereas some small finance banks offer rates ranging from 8% to 9%
Moreover, the objectives of small finance banks are focused on specific sectors (e.g., small entrepreneurs, rural areas). To distribute loans in these sectors, they need to raise capital through deposits.
Even after offering higher interest rates, these banks can earn relatively higher returns on such loans, thereby achieving profitability. Of course, these rates are determined following RBI regulations.
Leading Small Finance Banks Offering High Interest Rates
The table below compares the maximum interest rates offered on fixed deposits by some leading small finance banks. These rates apply to specific tenures, and most banks offer an additional ~0.50% interest rate to senior citizens.
| Small Finance Bank | Highest FD Rate (General Public) | Senior Citizen Rate | Tenure for Highest Rate |
|---|---|---|---|
| Unity Small Finance Bank | 8.60% | 9.10% | 1001 days (~2.75 years) |
| slice SFB (formerly North East SFB) | 8.50% | 8.50% | 18 months 1 Day to 18 months 2 Day |
| Suryoday Small Finance Bank | 8.40% | 8.80% | Above 30 Months to 36 Months |
| Utkarsh Small Finance Bank | 8.25% | 8.75% | 2-3 years (~1500 days) |
| Jana Small Finance Bank | 8.20% | 8.20% | 18 months |
Note: Slice (North East) Bank had offered a 9% rate to all customers for deposits of 18–36 months. Also, Suryoday Bank’s 9.10% rate was available to senior citizens for a limited period until May 2025.
Latest Small Finance Bank FD Rates 2025
From the above comparison, you can see that the FD interest rates of small finance banks have reached the level of around 8% to 9%. For example, Unity Small Finance Bank offers the highest interest rate of 8.60% for general customers and 9.10% for senior citizens.
Suryoday Small Finance Bank offers a maximum of 8.40% interest on fixed deposits for general customers and 8.80% for senior citizens. Utkarsh Small Finance Bank offers a high rate of 8.25% for 2 to 3-year fixed deposits for general customers and 8.75% for senior citizens.
Similarly, Slice Small Finance Bank (North East) had also offered an 8.50% interest rate for 18-month deposits. Jana Small Finance Bank and some other banks also offer interest rates above 8%.
This is the latest updated information; however, interest rates of each bank can change over time, so current rates should be checked before making a new investment.
FD Tenure and Lock-in: What You Must Know
While investing in an FD, it is necessary to clearly decide how long you want to invest the amount. Small finance banks often offer the highest interest rates for medium-term deposits (2 to 3 years). For example, Unity Small Finance Bank has a special fixed deposit scheme of 1001 days (~2.75 years) that offers the highest rate. Some banks also offer high-interest rates on 5-year deposits.
Lock-in period means the minimum period for which the deposit cannot be withdrawn. General bank FDs do not have a strict lock-in (Exception: Tax-saving FDs have a 5-year lock-in). Most banks allow premature withdrawal of fixed deposits, but a penalty is charged in such cases (e.g., 0.5% to 1% lower interest is given).
Therefore, if there is a possibility of withdrawing money during the deposit period, short to medium-term FDs should be chosen. If there is a long-term lock-in (e.g., tax-saving FD scheme), the deposit cannot be withdrawn before maturity, this should be kept in mind.
In the current situation, interest rates are stable or tend to decline, so many people consider locking in the available high rates for a longer period. However, when deciding the tenure, also consider your liquidity needs, inflation, and expected rate changes.
Check Credit Ratings for Extra Peace of Mind
Since small finance banks are scheduled banks regulated by RBI, all depositors get coverage of up to ₹5 lakh (through DICGC insurance). This means that in case of bank failure, an amount up to ₹5 lakh per depositor is secure. This layer of protection is definitely reassuring for small depositors.
Every small finance bank is required to maintain minimum capital as per regulations, and the RBI monitors their operations. However, compared to large banks, these banks are small in size and relatively new. Therefore, instead of keeping large sums in one bank, it is preferable to divide the amount across multiple banks. For example, if you want to invest ₹10 lakh, splitting it across two or more banks’ FDs will ensure that each deposit stays within the ₹5 lakh insurance limit.
From a credit rating perspective, some small finance banks have obtained ratings for their financial instruments. For example, Unity SFB’s short-term deposit certificates have been rated A1+ by CRISIL (crisilratings.com), which indicates an extremely strong capacity to repay funds in the short term. Such ratings reflect the bank’s credibility.
Nevertheless, investment decisions should not be made solely based on high interest rates but should also consider the bank’s financial condition, track record of customer service, etc. Even with proper regulation and insurance protection, deposit tenure and amount should be carefully planned as a precaution.
Conclusion
For investors seeking high interest rates, fixed deposits in small finance banks can be a good option. These banks offer higher returns compared to large banks and are regulated. However, before investing, it is necessary to check the prevailing interest rates, your needs for the relevant tenure, and the credibility of the bank. Even with this low-risk option, 100% security is not guaranteed, so with informed decisions and necessary caution, it is possible to earn higher returns from fixed deposits.
