In a low interest rate scenario, the fixed deposit (FD) rates offered by banks across the industry have plummeted. This has seriously impacted small savers and senior citizens for whom bank interest is a major source of income.
The 5-year FD rates for 5 top banks in India currently average 5.32% p.a. For senior citizens the average rate is 5.82% p.a. With retail inflation at 5% for the first months of calendar year 2021, the real returns on the FDs is less than 1%.
Some people have moved their investments to stocks which have fetched higher returns last year, however, the volatility associated with markets is not suitable for all, nor does everybody have the appetite for it.
For people who park their savings in banks, safety of the principal amount is very important. In stock markets, there is no guarantee of returns, and the value of investments may even go below the amount invested.
So what should one do in such a situation? One can look at parking a portion of one's savings in Non-Banking Finance Companies (NBFCs) or Housing Finance Companies (HFCs), which also have FD schemes and offer higher rates of interest than banks.
These NBFCc/Housing finance Companies are paying anywhere between 5.75% p.a to 8.26% p.a.
Shriram Transport Finance is offering the highest rate of up to 8.26% p.a.
Other names include Muthoot Capital, HUDCO, Bajaj Finance, PNB Housing Finance, ICICI Home Finance, HDFC Ltd., Mahindra Finance, Sundaram Finance and LIC Housing Finance.
The list includes top NBFCs / HFCs from India who have been in the business for decades.
Top 10 Companies offering Higher FD Returns than Banks
High returns come with high risks as the famous adage goes. You need to consider the credit ratings of these companies, the track record, background of the company and promoters, history of repayments and defaults if any, before parking your savings.
Don’t put all your eggs in one basket, is another popular adage. So don’t park all your savings in one NBFC, diversify your risk across banks and NBFCs / HFCs.
All the companies in the list above enjoy very high credit ratings. AAA rating signifies instruments of highest credit quality, highest safety, lowest credit risk and are most stable companies. ‘F’ means ratings assigned by CRISIL for FDs.
Shriram Transport Finance is assigned MAA+ credit rating, the lowest in the Top 10 list. However, this is also a high-credit-quality rating assigned by ICRA, just one notch lower than AAA. These deposit programmes carry low credit risk. ‘M’ means medium term scale rating assigned for public deposits.
These FDs are not currently covered by the insurance cover of Rs 5 lakhs provided by DICGC for deposits with banks. The government had increased this cover from Rs 1 lakh to Rs 5 lakhs after the PMC bank fiasco.
Keep this in mind while allocating a portion of your savings. Take calculated risks after analysing all information.
Disclaimer: This is not an investment / savings recommendation and readers are expected to do their own research before investing / saving in these instruments.