Public vs private banks: Which banks are offering better FD rates in May 2026?

Fixed Deposits (FDs) continue to remain one of the most preferred investment options for conservative savers amid market volatility and uncertain global conditions. With guaranteed returns, flexible tenures and low risk, FDs are attracting retirees, salaried investors and senior citizens looking for stable income.

As of May 2026, FD interest rates offered by scheduled banks range from around 2.5% to as high as 8% annually, depending on the bank type and deposit tenure. While public sector banks (PSBs) continue to attract depositors through safety and trust, several private banks and small finance banks are offering significantly higher interest rates to compete for deposits.

CALCULATE YOUR FD INVESTMENT HERE

Public sector banks

Public sector banks, which are majority-owned by the government, remain the preferred choice for investors prioritising capital safety and branch accessibility.

Large PSBs such as State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda and Canara Bank are currently offering FD rates largely in the 6% to 6.75% range.

Among major public banks, Punjab & Sind Bank is offering one of the highest slab rates at 6.75%, while Bank of Maharashtra and Indian Overseas Bank are offering up to 6.65%.

SBI currently offers up to 6.45%, while PNB and Union Bank of India offer rates up to 6.60%.

For longer tenures such as 3-year and 5-year deposits, most PSBs are offering rates between 6% and 6.30%.

Financial experts say PSBs remain attractive for risk-averse investors because of strong government backing, wide branch networks and higher confidence during uncertain economic periods.

MUST READ: Bank FDs vs Post Office time deposits: Which offers better returns, safety, tax benefits in 2026?

Private banks

Private sector banks are generally offering slightly higher FD returns compared to PSU banks, especially for medium-term deposits.

Banks such as IDFC FIRST Bank, CSB Bank, Tamilnad Mercantile Bank, Jammu & Kashmir Bank and Yes Bank are currently offering FD rates between 7% and 7.35%.

IDFC FIRST Bank and Tamilnad Mercantile Bank are offering up to 7.25%, while CSB Bank tops the private bank list with rates as high as 7.35%.

Among larger private lenders, HDFC Bank and ICICI Bank offer up to 6.50%, while Axis Bank offers up to 6.45%.

Kotak Mahindra Bank currently offers rates up to 6.80%, while Yes Bank offers up to 7%.

MUST READ: Want over 9% FD returns? These small finance banks offer up to 9.1% interest

Analysts say private banks often provide higher FD rates because they compete more aggressively for retail deposits and seek faster balance sheet growth.

Small finance banks

Even though the focus remains on public and private sector banks, small finance banks continue to offer the highest FD returns in the banking system.

Suryoday Small Finance Bank and Utkarsh Small Finance Bank are offering FD rates up to 8.10%, while Jana Small Finance Bank and Shivalik Small Finance Bank offer rates close to 7.8%.

However, financial planners caution investors to balance returns with risk, liquidity and deposit insurance considerations before allocating large sums to smaller institutions.

MUST READ: FD rates now: NBFC fixed deposits outpace banks in 2026 with returns up to 8.5%

What investors should consider

Experts say investors should not choose FDs based only on the highest interest rate.

Factors such as bank safety, liquidity needs, tenure, premature withdrawal penalties and senior citizen benefits should also be evaluated carefully.

Senior citizens typically receive an additional 0.25% to 0.75% interest over regular FD rates across most banks.

While PSBs remain preferred for safety and stability, private banks are increasingly attracting depositors through higher returns and better digital banking experience, making the choice largely dependent on an investor’s risk appetite and financial goals.