Get Best Fixed Deposit Rates by Approaching Smaller Banks

Banks and their savings products have been around since the inception of the financial world. Not only are these products perceived as safe repositories for storing funds but they are also considered as convenient methods for capital appreciation.

Fixed deposits are commonly preferred by people for investing their hard-earned money. The first factor that most individuals look at before opening a fixed deposit (FD) account is the interest rate. Interest rate decides the growth of your investment.

Generally, many people are known to approach several banks before shortlisting any one or two for opening a fixed deposit account. If you have been a keen observer, you will surely notice that smaller banks usually, offer higher interest rates compared to their larger counterparts. There is a strong financial reasoning behind this inference, which we will explain in a succinct manner here.

Why do these banks offer higher interest rates?

1. Limited Fund Raising Power  

Financial analysts have a strong proven belief that smaller banks find it relatively difficult to source funds as compared to the large nationalized banks. As a result, they opt for alternative ways for raising money through money markets using instruments such as the certificate of deposit and commercial paper.

However, all these methods are not enough in raising the much-needed funding for the bank. As a result, they are left with little choice but to offer higher fixed deposit interest rate to retail customers in order to get deposits.

2. Small Customer base   

Another important factor is that smaller banks have a limited retail customer base when compared to large banks. Moreover, they are in constant need of attracting new customers to keep the funds flowing. Therefore, to attract more customers, these financial institutions end up offering competitive interest rate on FDs.

3. Less Processing Fees

As the expanse of such banks is limited, the operations department does not have to shell out more money in processing transactions. Thus, the processing fees are significantly reduced and customers get its added benefit through higher interest rates.