Is Private Bank FD a Safe Investment?

A bank FD (Fixed Deposit) is one of the most traditional and preferred investment avenues, especially for investors with no or very little risk appetite. Even with lower interest rates in comparison to other options such as mutual funds, stocks, etc., it is still a popular choice looking at the safety belief attached to it. Since it is a general notion that government and public sector organisations are more reliable and trustworthy, you may also be anxious while investing in FDs with private sector banks. Let’s try to understand what an FD is, the safety issues, and if you should invest with private banks.

 

The fixed deposit, also known as a term deposit, is an investment scheme offered by banks and other NBFCs (non-banking finance companies) wherein your money is invested for a specified term and at a specific interest rate. The interest rates may vary slightly for different tenures and the senior citizens.

 

Opening a fixed deposit account offers you many benefits. Some of the major benefits of a fixed deposit account are as below:

• The return on investment is assured from the very beginning.
• Tax benefits can be availed against a 5-year fixed deposit under section 80C.
• Offers flexible tenures with a quick liquidation facility.
• Offers facility to raise loans against the fixed deposit amount.

 

Private banks are licensed, governed, and regulated by the Reserve Bank of India (RBI). They are only allowed to deal in public banking after having passed strict regulations set by the RBI. There are two major types of private banks – universal banks and small finance banks. Small finance banks generally offer a higher interest rate as compared to the universal banks. Thus, guided and regulated by RBI, it is pretty safe to invest in FDs offered by private and small finance banks.

 

It is essential to look at the credit rating of the bank you choose. Credit rating agencies such as CRISIL, ICRA, and India Ratings roll out ratings for all the banks in the country. AA or higher rated banks should be preferred for securing your deposits.

 

Do good research about the different tenures and interest rates offered by various banks, be it public or private. Lastly, choose the right type of FD based on your goals and budget.