Bank fixed deposits (or FDs) are considered to be one of the safest savings options because of their guaranteed returns. And this has been the perception since decades.
But people have now started asking which bank is safe for fixed deposit? Or which is the safest bank for fixed deposit in India (2021-22)? Why are they concerned about the safety of fixed deposits now?
The reason is because of the recent events in banking space (like Yes Bank, PMC Bank, etc. where restrictions on withdrawal were placed temporarily) have raised the question that earlier weren’t asked – Is my bank Fixed Deposit safe?
Most people don’t even think about losing capital or bank’s own solvency issues when making fixed deposits. They simply go with the option which pays the highest interest rate possible. They don’t even consider for a moment about bank failures or which is the safest bank for fixed deposit in India 2021?
Now small banks, new banks and some NBFCs offer higher interest rates on FDs to customers as compared to other top banks like State Bank of India (SBI), HDFC Bank, ICICI Bank, etc. to name a few. But where there is comparatively higher return, it means there is higher risk as well.
So the next question is or should be: Which are safe banks for Fixed Deposits in India (2021)?
I will say that most Indian banks are safe most of the times. RBI does its job fairly well and hence, problems if any are more or less very rare. But that doesn’t mean that you can put all banks in the same risk bucket.
So your bank Fixed Deposits (FDs) are safe. But you need to be careful which bank you put your FDs in. Remember that Fixed Deposits are good for short term. So you wouldn’t want any risk to this money.
If I were you, then I would give priority to the safety of the bank as well as ensuring the return of capital and not just return on capital on my bank FDs.
So with that said, which are safe banks for Fixed Deposits in India (2021-22)?
I would say its best to stick and park major chunk of your deposits with the RBI-identified Systematically Important Banks (D-SIBs). You can read about it here. These are banks that are too-big-to-be-allowed-to-fail banks of India.
And these are State Bank of India (SBI), HDFC Bank and ICICI Bank.
Only three for now. RBI may add to this list in future as better and stronger banks emerge.
So you can say that these are the safest bank for fixed deposit in India. Even RBI feels that these banks are important enough to be identified separately. And if these banks fail, then you can be sure that there would be far bigger problems in the country then.
- Is ICICI Bank safe for Fixed Deposits?
- Is HDFC Bank safe for Fixed Deposits?
- Is SBI (State Bank of India) safe for Fixed Deposits?
I hope you got the answers as these 3 banks have been identified as systematically important domestic banks of India by RBI itself. I won’t go the extent of saying that these are the safest banks for fixed deposits, but yeah, it’s pretty close to that.
Please do note that I am not saying that all other banks (or other public sector banks) are bad. Nothing like that. It’s just that these are very large and very important banks which the government will go to its limits to ensure that they don’t go bad. Risks are still there. But lesser in these banks. And how safe are fixed deposits in all other nationalized banks in general? Pretty safe I will say. Not trying to create any panic via this article. Just trying to highlight the various points one should consider while picking banks for FDs.
So now you know how to think properly about which bank is safe for fixed deposit in India (2021-2022)?
Since we are talking about deposits, you should also know that the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is an RBI subsidiary, insures your deposits with all commercial and cooperative banks. Yes. But not all of your deposits. The DICGC will compensate you only up to Rs 5 lac for all your deposits and savings in various accounts in any one bank. That’s it. This limit was recently enhanced in 2020 Budget from the earlier deposit insurance limit was just Rs 1 lac.
You can read more about deposit insurance on DICGC’s website using this link.
But it must also be said that Rs 5 lac is a small amount for many of you. So it won’t be much of a help. And even if this guarantee was to be invoked at the failure of any bank, don’t assume that money will be refunded to you overnight. It will take times to come back.
Now I understand that for many it’s not possible to just stick with these 3 banks. You may have your problems or compulsions. So few more points to consider:
- If you have a large enough FD portfolio, try to spread your fixed deposits across a few banks. Major chunks in the safe ones. And some in others which most probably offer higher FD interest rates than bigger banks. It’s like spreading your bets plain and simple.
- You can also spread money across family members to use the Rs 5 lac insurance angle for each one instead of just one person.
- Instead of making one large FD, make a few smaller ones. You can even make a ladder of fixed deposits maturing at regular intervals to handle reinvestment risk.
- What about corporate deposits from NBFCs? They are risky and they do offer quite high rates which no doubt can be tempting. But that doesn’t mean that you should avoid all company FDs. Just beware of unusually high-interest rates that some company FDs may offer. Study the company’s background and credit rating. And simply stick with most reputed and trustworthy names having AAA ratings. Also, try and limit your exposure to these deposits to a small part of your FD portfolio. Don’t be too adventurously greedy to generate high returns from FD. If you want high risk-taking and high returns, go and invest in equity markets.
- If you understand how to pick debt funds properly, then even debt funds can be a good option for many as a sort of replacement of fixed deposits. But debt funds are not risk-free. So first, do understand what debt funds are not and have the right expectations from debt funds before you invest in it.
- But do understand bank FD interest taxation and how debt funds win in this aspect as debt fund taxation is very different.
Those are just a few general suggestions. There may be many other best practices I am sure you may also know about.
But that’s it. One of the problems is that most people in India look for which bank best-fixed deposit interest rate OR which banks is best for fixed deposits in India OR which bank gives higher interest rate on FD in India OR which bank gives highest interest rate in India.
It’s good to search for the best.
But don’t ignore the risks. These risks are mostly hidden but when they come in front, they can shatter your finances as has happened many time in past with people investing in deposits of poorly managed small banks and deposits of shady organizations.
By the way, if you are a senior citizen, then you have other decent options as well. You can read Best Interest Income Options for Senior citizens to know more.
At times, banks occasionally launch limited-period special deposits for senior citizens which pay comparatively higher interest rates. Even those from the larger banks can also be good bets for senior citizens or retirees.
Note – If you are looking for monthly interest from fixed deposits, then you may like to read monthly interest Rs 1 crore fixed deposit OR monthly interest Rs 2 crore fixed deposit OR monthly interest Rs 50 lakh fixed deposit.
So hopefully, this post would have given you some idea about which is safe bank for fixed deposit in India and which bank is safe for fixed deposit (2021)? So be cautious about your bank FDs and don’t go only after the highest FD interest rates.
PS – Please do note that I am not saying that all other banks are bad. Just trying to highlight the various points one should consider while picking banks for FDs. Not trying to create any panic via this article.