Fixed deposits (FDs) remain one of the most preferred investment options in India, especially for risk-averse investors. And now, Small Finance Banks (SFBs) are offering some of the highest FD interest rates, beating traditional banks.
As per BankBazaar data updated on July 25, Suryoday Small Finance Bank is offering the highest interest rate of 8.15% on two-year FDs, making it a lucrative option for investors aiming to maximise their returns.
What Are Small Finance Banks and Are They Safe?
SFBs are regulated by the Reserve Bank of India (RBI) and are designed to promote financial inclusion by lending to underserved sections such as micro and small businesses.
Importantly, deposits in SFBs are insured up to ₹5 lakh per depositor per bank under the Deposit Insurance and Credit Guarantee Corporation (DICGC). This includes both principal and interest, making FDs in SFBs as safe as those in larger banks, provided investors stay within the insured limit.
However, because SFBs often lend to higher-risk borrowers like micro enterprises, they may carry slightly higher credit risk. Experts suggest choosing RBI-registered SFBs and capping deposits at ₹5 lakh to remain within the safety net of DICGC.
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Highest Interest Rates Offered on Two-Year FDs
Here’s a look at the best-performing Small Finance Banks as of July 25, 2025, for two-year fixed deposits (non-senior citizen, retail, below ₹1 crore):
| Bank Name | Interest Rate | Returns on ₹1 Lakh (2 Years) |
|---|---|---|
| Suryoday SFB | 8.15% | ₹1.16 lakh |
| Equitas SFB | 7.60% | ₹1.15 lakh |
| ESAF SFB | 7.60% | ₹1.15 lakh |
| Ujjivan SFB | 7.60% | ₹1.15 lakh |
| AU Small Finance Bank | 7.10% | ₹1.14 lakh |
Note: Figures are for indicative purposes and may vary across branches or investor profiles.
Neutral Analysis
For investors seeking higher fixed-income returns without straying into volatile asset classes, SFBs present a viable alternative. With interest rates significantly higher than those offered by most public and private banks, short- to medium-term FDs in SFBs can help improve portfolio yields—as long as investors remain within DICGC-insured limits.
In the current rate cycle, parking up to ₹5 lakh in SFBs like Suryoday or Equitas could be a smart move for conservative savers aiming to earn more from their fixed deposits.
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