Premium cards to higher rates: How small saving banks are luring depositors

It's advantage investor these days as banks are competing hard to attract depositors. While large lenders are resorting to special schemes, small savings banks are rolling out special cards, higher interest rates on savings accounts and competitive fixed deposit rates too. 

7.5 per cent interest on savings account
On Friday,  Ujjivan Small Finance Bank (Ujjivan SFB)  said it is offering 7.5 per cent interest, one of the highest in the industry, on a new savings account. Known as the Maxima Savings Account, the new offering is meant for premium customers. Users can open the account with Rs 1 lakh. 

Customers also have the flexibility to maintain Rs 15 lakh or more in fixed deposits to meet the balance eligibility criteria of the Maxima Savings Account, an option not available with other standard savings accounts. 

Rupay Select Debit Card is offered with Maxima Savings Account which includes a host of freebies like complimentary lounge access, an annual premium health check-up free of cost, travel coupons, golf lessons, personal accident and permanent disability insurance coverage of up to Rs 10,00,000 among other benefits. 

FD rates at 9 per cent and more 

Cards galore

Last week, AU Small Finance Bank ( SFB) rolled out its premium credit card offering to attract new deposits and retain existing customers seeking more banking services.

 SFB introduced the Zenith+ metal card, with an annual fee of Rs 4,999, excluding taxes. It offers customers complimentary rounds of golf, free movie tickets, and other benefits. 
 

AU Small Finance Bank has also taken another step in enhancing its customer services by sealing bancassurance deals with Star Health and Allied Insurance Company, and Bajaj Allianz Life Insurance Company. This move aims to provide health and life insurance solutions to the bank's customers, creating a one-stop destination for their financial needs.

In the case of the bancassurance partnership with Star Health, AU SFB will distribute health plans. In the case of Bajaj Allianz Life Insurance, AU SFB will distribute the term insurance, savings and retirement products. 

Similarly, Fincare  Small Finance Bank has elevated its festive offering with the launch of Prepaid Cards, available in both physical and virtual forms, designed to gift the power of choice. 

With a mobile-friendly digital portal, customers can manage all aspects of their prepaid card, including the added convenience of contactless payments, while benefiting from real-time transaction alerts via SMS and email. 

"These cards are designed to provide convenience and flexibility in managing finances. Whether it’s for everyday expenses, travel, or gifting, our Prepaid Cards offer a secure and hassle-free solution. Fincare  Small Finance Bank continues to innovate and adapt to the evolving financial landscape, ensuring that our customers have access to modern and efficient banking services," said Jatinder Shah, Chief Operating Officer of business Banking & Digital Consumer Banking – Fincare Small Finance Bank.

FD rates at small finance banks, as compiled by Paisabazaar as of 6 September

Rates for senior citizens at Small Finance Banks

Competitive rates at larger banks too

Among the larger banks, three hiked their fixed or term deposit interest rates for senior citizens and general customers last month. Private lender Axis Bank raised its fixed deposit rates for its senior customers, effective from August 14. It is now offering 3.5 per cent to 8.05 per cent interest to senior citizens on deposits maturing in 7 days to 10 years. These interest rates are valid on callable term deposits below Rs 2 crore.

Canara Bank is offering 4 per cent to 7.75 per cent rate of interest on FD schemes to senior citizens.  Federal Bank said the term deposit rate for a tenure of 13 months would fetch interest rates of 8.07 per cent for senior citizens. 

HDFC Bank is offering up to 7.75 per cent interest rates on FD, depending upon deposit tenure and depositor’s age. SBI is offering FD rates up to 7.50 per cent annually and PNB is giving up to 7.75 per cent a year.

Should you opt for small savings banks?

But before you get carried away with 8-9 per cent interest rates on FDs, make sure to spread your FD investments across all asset classes and not put all eggs in one basket. Before picking your bank, monitor the banks’ financials, especially the non-performing assets (NPAs), profitability and capital adequacy in order to avoid the spillover risk on depositors in the event of a bank failure.

Moreover, DICGC covers a maximum of Rs 5 lakh for each depositor (either in single or jointly held) for principal plus interest. Hence, manage your exposure to a small finance bank to never exceed Rs 5 lakh. In case you want a monthly payout, then you may go upto a Rs 5 lakh deposit, and withdraw the interest every month for expenses. Other attributes you may look for are whether the bank is a listed entity (listed entities have higher regulations) whether it has a number of branches in your city (higher the better), will you have access to your account online," said Chaitali Dutta of Azuke Personal Finance Advisory. 

"The current FD rates are beneficial for anyone dependent on a fixed income to maintain regular expenses. However, the fixed returns may not help anyone meet bigger goals like retirement or children’s education for several years. Also, one must know that FD is taxable unless you are a senior citizen who also gets .5% higher returns on your deposits.  FD is a conventional saving instrument preferred by risk-averse investors, including senior citizens or someone who invests without considering inflation. Creating wealth and fulfilling long-term financial goals can become challenging with low and taxable returns," said Adhil Shetty, CEO of BankBazaar. 

Opt for FD laddering 

Adhil believes that if one is opting to park money in FDs, the FD laddering strategy should be adopted for better average returns on savings while providing liquidity regularly. For example, you could open FDs with 1-year, 2-year, 3-year, and 5-year tenures. This diversification ensures that a portion of your investment matures each year. As each FD matures, you can choose whether to renew it or withdraw your funds. If inflation is low, you can reinvest the maturing FD at prevailing interest rates. If interest rates have risen, you can benefit from the prevalent higher rates. This gives you a way to get better average returns than when you’re locked into a single low-rate FD for the long term. If you initiate a FD with a sum of Rs 1 lakh, set for a one-year term with a 5% interest rate, and there's an inflation rate of 6%, your returns would be insufficient to counter the inflationary impact. On the contrary, employing a strategy where you open a series of FDs, each with increasingly higher interest rates over time, such as 5%, 7%, and 8% for successive years, would better enable you to outpace and mitigate the effects of inflation.