The best replacement for folktale is fable.

The best alternatives to folktale are rated as following:
★★★★★  fable
★★★★  fairy tale
★★★  legend
★★★  myth
★★  tall tale
★  folklore
★  fairytale
★  banished
  folk tale
  urban legend

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Google Trends

Scale is based on the average worldwide traffic of folktale in all years. Click on graph for more.
folktale
fable
fairy tale