Falling interest rates on bank FDs have been pinching investors for quite some time now. Investors with some appetite for risk flocked towards small finance banks in search of better rates. The ones comfortable with higher risk choose deposits offered by NBFCs and other corporates. For those looking for better rates, there is another way out - special deposits.

Some banks offer a tad higher interest rate on FDs of certain special tenures. For instance, Equitas Small Finance Bank offers an FD for 888 days (a bit over 2 years and five months). The interest rate on this deposit is 6.5 per cent per annum. It offers 6.35 per cent per annum both on its deposits of greater than 2 years to 887 days and on deposits of 889 days and above. Since seniors get a flat 0.5 per cent additional rate on all deposits of Equitas SFB, they can benefit more from this special tenure FD.

DCB Bank offers a special rate for deposits with a tenure of 700 days (23 months). This deposit can fetch you 6.4 per cent per annum. Compared to this, the bank’s other deposits with tenures of 15 months and beyond, up to less than 3 years (except 700 days) offer only 6 per cent per annum. Seniors get 50 basis points (bps) higher interest across all tenures. Note that, you must deposit a minimum of ₹10,000, across deposits of all tenures.

Similarly, Axis bank offers a rate of 5.15 per cent for FDs with tenure of 1 year and 5 days to 1 year and 10 days. On all other deposits with tenure greater than 1 year (up to 1.5 years) the rate of interest is 5.1 per cent.

Just a day longer

A few other banks have higher rates for select range of tenures. In these cases, by expanding your investment tenure by just a day, you can avail higher interest rates on your bank FDs.

For instance, AU Small Finance Bank offers 6.1 per cent per annum on FDs with tenure ranging from 12 months and 1 day to 15 months. This is higher than the 5 per cent on deposits of up to 1 year and the 6 per cent offered on tenures beyond 15 months and up to 2 years.

If you have a slightly longer horizon, you can consider the bank’s FD for 2 years and 1 day which can fetch you 25 basis points higher interest rate per annum than a 2-year deposit.

Even with HDFC bank, by stretching the deposit tenure for a day beyond two years, you can earn 25 basis points higher rate, that is 5.15 per cent per annum.

ICICI Bank offers 4.9 per cent on deposits with a tenure of up to 1.5 years, beyond which the rates are 10 basis points higher i.e. 5 per cent per annum for tenures of up to 2 years. A deposit for even a day longer than 2 years can fetch you 5.15 per cent per annum.

Word of caution

However, do keep a check on the bank’s financials and do not base your investment decision solely on the rate of return offered. For instance, while DCB Bank offers higher rates, in the recent March quarter it reported a spike in its GNPA (gross non-performing assets) to 4.09 per cent from 2.46 per cent a year ago. This is expected to deteriorate further in the coming quarters with the second wave of the pandemic hampering collections. While the bank is adequately capitalised (CRAR of 19.67 per cent), its provisions cover just about 62 per cent of the bad loans as of March 2021.

Also, since the interest rates are bottoming out it would be wise to limit the tenure of your deposits to a maximum of two to three years today. Then, you will be well placed to benefit from higher returns on your FDs when rates go up. Also, be mindful of any restrictions on pre-mature withdrawals on such special FDs.

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