Small finance banks continue to lead the fixed deposit (FD) market with interest rates above 8%, offering significantly higher returns than most public and private sector banks. For investors seeking predictable income and capital safety, these banks have emerged as attractive options amid a competitive deposit environment.

A fixed deposit (FD), also known as a term deposit, allows investors to park funds for a predetermined tenure and earn a fixed rate of interest. At maturity, investors receive their principal along with accumulated interest, making FDs a popular choice among conservative savers.

According to the latest FD rate data updated on May 27, 2026, Jana Small Finance Bank offers the highest FD interest rate among scheduled banks at 8.11% per annum. Close behind are Suryoday Small Finance Bank and Utkarsh Small Finance Bank, both offering up to 8.10% per annum on select tenures.

The rates offered by small finance banks are notably higher than those available at most large private and public sector banks. Among private sector lenders, Bandhan Bank and RBL Bank offer FD rates of up to 7.25% and 7.20%, respectively. In the public sector space, Central Bank of India offers the highest rate of up to 6.65% for general customers on select long-term deposits.

MUST READ: Choose your FD scheme: Corporate FDs offer higher returns, but are they worth the extra risk?

Attractive rates

Several small finance banks are offering attractive rates across popular investment horizons. For example, Suryoday Small Finance Bank offers 7.25% on one-year and three-year deposits, while Jana Small Finance Bank provides 7.50% on three-year deposits and 7.77% on five-year deposits. Ujjivan Small Finance Bank offers 7.25% on one-year deposits and 7.20% on both three-year and five-year tenures.

Senior citizens continue to receive additional benefits, with most banks offering an extra 0.50 percentage point over regular rates. Some lenders provide even higher incentives. ESAF Small Finance Bank offers up to 8.50% for senior citizens on select tenures, while Suryoday offers up to 8.25%. Bandhan Bank and YES Bank offer additional interest ranging between 0.50 and 0.75 percentage point, depending on the tenure.

Experts say the higher rates offered by small finance banks can help investors improve returns from their fixed-income allocation. However, investors should not make decisions based solely on interest rates.

MUST READ: Choose your FD scheme: How public and private banks' FD rates compare for depositors

Investment

Before investing, depositors should assess factors such as the bank's financial profile, liquidity requirements, premature withdrawal rules, and deposit insurance protection. Under the Deposit Insurance and Credit Guarantee Corporation (DICGC) framework, deposits of up to ₹5 lakh per depositor per bank are insured, including both principal and accrued interest.

Financial planners also recommend spreading deposits across multiple banks rather than concentrating large sums in a single institution. This approach can help investors benefit from higher rates while managing concentration risk.

With FD rates touching the 8% mark at several small finance banks, investors willing to look beyond traditional large lenders may find opportunities to enhance returns while retaining the stability and predictability that fixed deposits are known for.

Published on: May 30, 2026 6:35 AM IST