Small Finance Banks Vs PSU FDs: Where Your Savings Can Earn More In 2025

For decades, fixed deposits (FDs) have remained a preferred investment avenue among Indians, especially for those seeking stable returns with low risk. But with changing banking dynamics, financial experts are now highlighting a shift—some small finance banks are offering higher interest rates on savings accounts than what large public sector banks provide on fixed deposits. This trend is reshaping how risk-averse investors evaluate their options in 2025.

According to financial advisors, while FDs continue to offer capital security, comparing real interest yields reveals that certain savings accounts are now outperforming fixed deposits in interest returns, without locking away funds for years.

Savings Accounts Giving Higher Returns Than FDs?

Yes, it’s happening. A closer look at offerings from smaller banks reveals significantly more attractive interest rates on savings deposits—sometimes nearly a full percentage point higher than the fixed deposit rates of India’s largest banks.

Take DCB Bank, for instance. It currently provides 7.75% interest on savings balances ranging between ₹10 lakh and just under ₹1 crore. Meanwhile, public sector heavyweight State Bank of India (SBI) offers only 6.25% on 1-year FDs, falling behind by a notable margin.

Similarly, Suryoday Small Finance Bank and Utkarsh Small Finance Bank are offering 7.50% on savings balances above ₹10 lakh and ₹5 lakh, respectively. This clearly gives everyday depositors a chance to earn more without locking funds in time-bound instruments.

Fixed Deposit Rates from PSU Banks Lag Behind

Let’s examine how some of India’s largest public sector banks fare when it comes to fixed deposit interest:

• SBI: 6.25% (1 year), 6.30% (3 years), 6.05% (5 years)
  
  
  
• Canara Bank: 6.50% across 1-year, 3-year, and 5-year tenures
  
  
  
• Bank of Baroda: 6.50% (1 and 3 years), 6.40% (5 years)

Punjab National Bank: 6.40% (1 and 3 years), 6.50% (5 years)

While these figures are by no means poor, they are being quietly surpassed by newer, more agile small finance banks that aim to attract fresh deposits by offering better rates.

What Do Experts Say?

According to wealth management professionals, the appeal of FDs lies in their guaranteed return and maturity-based structure, which suits conservative savers. However, in today’s interest rate climate, flexibility matters just as much as return.

“Most people don’t realise their money could work harder in a high-yield savings account,” says one senior analyst at a Mumbai-based financial advisory firm. “With the right bank, savings accounts are now offering FD-like security, plus better liquidity.”

That said, experts advise depositors to scrutinise terms carefully. Higher interest may apply only above specific balance thresholds—often starting from ₹5 lakh or ₹10 lakh—and conditions vary across banks.

Should You Rethink Your FD Strategy?

It depends on your financial goals. If you’re aiming for predictable returns over a fixed term with no need for emergency liquidity, traditional FDs still serve the purpose well. But for those seeking short-term flexibility or planning to park large amounts temporarily, a high-interest savings account could be a smarter, more rewarding option.

Also worth noting: while small finance banks are RBI-regulated and offer up to ₹5 lakh deposit insurance, investors should still consider the financial strength of the institution before depositing large sums.

The Takeaway: Safety and Yield Can Coexist

The shift towards better interest offerings by smaller banks is a sign of a more competitive banking landscape. While PSU banks offer familiarity and perceived safety, small finance banks are pushing the envelope on returns—without drastically compromising on risk.

Savvy savers may no longer need to choose between liquidity and return. With careful comparison and planning, they can enjoy both higher earnings and peace of mind.

Disclaimer: This article is intended for informational purposes only and does not constitute investment advice. Readers are encouraged to consult a certified financial advisor before making any banking or investment decisions.