Digital FDs: high on convenience but mind the risk

Subscribe to enjoy similar stories.Just as online brokers have made stock investing possible with a click, several applications now allow users to invest in fixed deposits (FDs) from multiple banks online without needing savings accounts with those banks.In April, low-cost broker Zerodha joined the bandwagon by launching such digital FDs on its investment platform Coin. Other apps that facilitate digital FD investments include Stable Money, SuperMoney, Jiraaf, and GoldenPiThe main advertising pitch for digital FDs is higher interest rates than those offered by traditional banks and the convenience of a one-stop shop.

Some apps also offer credit cards against FDs, which attracts younger people who don’t have a credit score yet. But like any investment product, digital FDs require a proper understanding in terms of risks and suitability.

Here we look at what’s on offer and who these investments make sense for.While online FDs are not new, the new-age platforms allow users to buy FDs of different banks and financial institutions in one place. The offerings typically include FDs of small finance banks and some non-banking financial companies (NBFCs).Small finance banks are a new category of banks that emerged over the last decade, with the goal of promoting banking in underserved areas, such as semi-urban and rural India.

Ujjivan Small Finance Bank, Equitas Small Finance and Jana Small Finance Bank are all SFBs. AU Small Finance Bank, one of the largest small finance banks, is now in the process of transitioning to a universal bank.Small finance banks are regulated by the Reserve Bank of India (RBI), which also regulates traditional banks.