Investors should cap their FD exposure in small finance banks to 25%

Many banks offer between 0.5% and 0.75% higher interest to senior citizens

To garner more customers, small finance banks are offering much higher interest rates on their fixed deposits (FDs).

• Reserve Bank of India (RBI) regulates small banks, and they are safe. FDs up to Rs 1 lakh are insured by the Deposit Insurance and Credit Guarantee Corp, a subsidiary of RBI.
• Investors should, however, diversify their FDs with a larger allocation to big banks and restrict their exposure to 25 per cent in small banks as they are yet to establish a track record.
• When choosing a bank, opt for one that has a branch close to your office or home.
• To get higher rates, depositors can also look at FDs under small savings schemes that offer interest rates between 7 per cent and 7.8 per cent for one to five-year tenures.
• Many banks offer between 0.5 per cent and 0.75 per cent higher interest to senior citizens.
• Seniors should, however, first exhaust the Rs 15 lakh limit offered under Senior Citizen Savings Scheme and then look at other options.