Unaffected by market fluctuations, fixed deposits are a great way to earn interest on your corpus and ensure growth. This is why FDs are a popular low-risk investment, and you can rely on it to adjust the risks in your portfolio. Offered by both corporates and banks, FDs offer much-needed flexibility.
The terms and returns, however, may vary depending on the type of issuer you choose. To understand which of the two works the best for you, it is important to know the difference between them.
Read on for an analysis of corporate FD vs bank FD and how to choose between them.
Although bank FDs are a traditional investment option, corporate FDs have become popular in the last few years. The main difference in bank FD vs corporate FD is that a corporate FD is offered by non-banking financial companies (NBFCs) and other companies. These FDs also come with assured returns and ample flexibility.
A corporate FD usually features higher interest rates, and this results in higher returns
Corporate FD issuers usually have lenient lock-in or premature withdrawal terms, making it easier for you to access your corpus
The corporate FD instrument and the issuer are assigned a rating from leading credit rating agencies like ICRA and CRISIL, which speak for the stability and credibility of the instrument.
Corporate FD issuers generally offer enhanced services ranging from simplified investing features to digital provisions that allow you to invest flexibly.
Corporate FDs allow you to select your tenor and often have better terms.
Depending on the issuer, you may also be able to withdraw your funds prematurely without any restrictions imposed on them.
The interest rates on company fixed deposits are generally higher than the rates on bank fixed deposits.
In corporate FDs, you can decide whether you want cumulative returns or receive them at periodic intervals through a non-cumulative FD.
These FDs also come with safety ratings from credit agencies such as CRISIL, CARE, and ICRA.
Certain issuers will offer a loan against your FD.
When you invest in an FD offered by a bank, it is known as a bank FD. These are the traditional, popular and safer investment options in the market. As per an RBI report, 53% of financial household assets are bank FDs. Bank FDs are generally considered safe because they come with added security from the RBI’s mandate of compulsory deposit insurance for banks.
This is also an important point to be considered when comparing corporate FD vs bank FD instruments. Like corporate FDs, bank FDs also offer stable returns because they are not affected by market volatility.
Here are some of the benefits and features of bank FDs.
The Bank FD tenor can range from seven days to ten years.
Like corporate FDs, bank FDs can also offer returns at maturity or at periodic intervals.
These FDs are offered by registered private and state-run banks.
The Reserve Bank of India offers the security of up to ₹1 Lakh on bank FDs.
Based on the issuers’ terms and type of FD, bank FD can also act as a tax-saving investment instrument.
The process of starting a bank FD is simple, easy, and quick.
The returns from a bank FD are generally higher than that of a savings account.
Depending on the issuers, you can avail of a loan against your bank FD.
Backed by the Reserve Bank of India, bank FDs come with added security.
You can make a premature withdrawal; however, based on the terms of the issuer, it may be subject to a penalty.
Depending on the issuer, you may be eligible for additional benefits if you hold a savings account with them.
The interest rates on corporate fixed deposits tend to be higher than those on bank FDs.
The rate of interest on bank FDs is lower than the interest rates offered by corporate fixed deposits.
The tenor for corporate FDs generally ranges between six months and five years.
Bank fixed deposits tenor can range from seven days to ten years.
Corporate fixed deposits may pose a higher risk for the investor.
Bank FDs are low-risk investments and come with an RBI security of Rs 1 lakh.
If you withdraw funds from your corporate FD after 3 to 6 months from the date of investment, you may not be required to pay any interest.
Within 6-12 months, 2-3% interest can be charged.
Banks charge around 2% interest on premature withdrawal of funds.
Corporate FDs do not have any tax benefits.
Certain bank FDs come with a lock-in period of 5-10 years and can be tax-saving tools.
Canara Bank FD – Returns up to 7.50% per annum
HDFC Bank FD – Returns up to 7.30% per annum
ICICI Bank FD – Returns up to 7.10% per annum
Bajaj Finance Limited – Returns up to 8.60% per annum
PNB Housing Finance Limited – Returns up to 8.15% per annum
Mahindra Finance – Returns up to 8.30% per annum
ICICI Home Finance – Returns up to 7.35% per annum
Muthoot Capital Fixed Deposit – Returns up to 7.25% per annum
When comparing a corporate FD vs bank FD, consider the following points to make a well-informed decision and prioritise your financial well-being.
List all the reasons why you are investing in a fixed deposit. This can help you determine whether you need to invest for a short term or a long term. For short-term goals, corporate FDs are a great option.
Their lock-in periods are shorter and interest rates are higher, leading to better returns.
Interest rates for bank FDs have been declining over the past few years. Lower interest rates may result in returns that are inadequate to combat inflation. Therefore, it is important to do the due diligence before you decide to invest. Given that corporate FDs generally offer higher interest rates, they can be a better option in such situations.
Along with interest rates, tenor and lock-in periods, you must also look at all the other benefits, penalties, and attributes of the options available to you. This provides a holistic view of the returns of corporate FD vs bank FD instruments, and can help you decide.
The bank FD vs corporate FD assessment is a good way to identify value, but remember that both have their pros and cons. Regardless of the issuer, fixed deposits are a trusted avenue of investment. Depending on your investment goals, you can either choose the safer, low-return bank FDs or the moderate-yield corporate FDs.
Other considerations to keep in mind while contemplating company FD vs bank FD include the tax benefits, premature withdrawal, and safety. You can browse for the right FD for you on Bajaj Markets. With a quick and easy online process, you can not only find the best options, but also invest just as easily.
Fixed Deposit and Other Investment Comparisons
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Compared to bank FDs, corporate FDs have a higher risk factor as they are unsecured.
FDs may not be able to earn you a lot of revenue if your tax implications are higher than interest earnings.
FDs are considered the safest form of investment and offer guaranteed returns.
No, the interest rate offered on corporate FDs is generally higher than bank FDs.
No, not all companies offer fixed deposits.
TDS is deducted only if the interest earnings exceed the threshold mentioned in the Income Tax Act.
Yes, depending on the issuer, NRIs can invest in corporate FDs.
The best corporate FD is the one that offers high interest rates, security, and other value-added features to meet your goals easily. Find the best options for you on Bajaj Markets.
You can book a company FD by visiting the issuer’s website or by investing through platforms such as Bajaj Markets.