NBFC FDs Offer Higher Returns Than Banks, But What You Should Be Careful About

Amid falling interest rates, several banks are revising the interest rates of their deposits and loans. While it is beneficial for borrowers as they can obtain loans at lower rates, depositors need to find alternative avenues where they can secure a fixed return. Those who invest in bank deposits (FDs) for a guaranteed interest income have the option to invest in non-banking financial companies (NBFCs). Where the State Bank of India (SBI), Punjab National Bank (PNB), and many other banks offer interest rates in the range of 7-8 per cent to seniors, NBFCs offer more than 8 per cent to seniors for longer tenures, such as 60 months, which is undoubtedly attractive.

What Is NBFC?

The Reserve Bank of India (RBI) defines an NBFC as “a company registered under the Companies Act, 1956 or Companies Act, 2013, and engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, etc., as their principal business”.

RBI allows NBFCs to accept time deposits or say fixed deposits, but not any demand deposit. Thus, they cannot issue cheques drawn on themselves and be a part of the payment and settlement system.

Fixed Deposit Interest Rates Offered By NBFCs

• Recently, Shriram Finance Limited (SFL) announced that it would revise its FD rates effective June 26, 2025. SFL is an NBFC and offers an additional interest of 0.50 per cent of 50 basis points (bps) to senior citizens, just like scheduled banks. Although it also has reduced rates by 30-40 bps across tenures, the rates are still higher than what scheduled banks are offering. They can avail of up to 8.50 per cent on FDs of 36 months, 50 months, and 60 months.

• Muthoot Capital, at the same time, offers a maximum of 9.10 per cent interest on its annual interest FDs, up to 8.95 per cent on FDs on which interest is paid on maturity, and up to 8.60 per cent on monthly interest FDs. Notably, the interest rate is 50 bps extra than these rates.

• Another example is Bajaj Finserve, which offers up to 7.30 per cent to seniors for 24 months to 60 months tenure. 

Read here to know the revised interest rate of scheduled banks during the week ending June 21, 2025.

Amid falling interest rates, NBFCs are offering higher interest rates than other banks. Should you invest in these FDs?

Says Anuj Kesarwani, a certified financial planner, chartered trust and estate planner, and founder of Zenith Finserve: “You can invest in these FDs if you want to earn higher returns. RBI has already cut interest rates thrice in the last four months. Most banks have already reduced the rates on their fixed deposits. NBFCs are going to reduce the rates in the upcoming days.”

However, he suggests noting that these are not secured like bank fixed deposits, which are insured up to Rs 5 lakh by the Deposit Insurance and Credit Guarantee Corporation (DICGC).

Should Senior Citizens Consider Investing In NBFC FDs?

Kesarwani shares that all NBFC FDs have credit ratings based on the company’s financials from credit rating agencies. So, one can invest in NBFCs with good credit ratings.

He suggests, “Senior citizens can invest some funds out of their total corpus in NBFC FDs to earn slightly higher returns based on their needs. They can also consider Senior Citizen Savings Scheme (SCSS), Post Office Monthly Income Scheme (POMIS), and State Government Bonds and invest based on what suits them best. These are safer than NBFC FDs. Though, the returns may be lesser comparatively.”

So, while NBFCs offer higher interest rates, one should evaluate the requirement of such FDs in one’s portfolio and check credit rating and be aware that these are not insured under DICGC.