When you’re looking for fixed-income investments, both bank fixed deposits (FDs) and corporate FDs can seem appealing. They offer predictable interest income and low volatility, which makes them popular among cautious and low-risk investors.
But which one should you choose? Well, that depends on a range of factors like your financial goals, risk tolerance, time horizon, and the applicable interest rates. Understanding these factors will help you decide whether a bank FD or corporate FD suits your needs.
This article offers a quick guide on the factors to evaluate before deciding between corporate FDs and bank FDs.
What Is a Bank FDs?
A Bank Fixed Deposit (FD) lets you invest a lump sum with a bank for a fixed period at a set interest rate. You can receive interest regularly (monthly/quarterly/annually) or at maturity. Bank FDs are insured by DICGC up to ₹5 lakh, making them a safe and low-risk investment choice.
What Is a Corporate FD?
A Corporate Fixed Deposit (FD) is offered by NBFCs or companies to raise funds from investors. These FDs usually offer higher interest than bank FDs but carry more risk since they are not DICGC-insured. Their safety depends on the issuer’s credit rating (given by agencies like CRISIL) and financial strength.
Corporate FDs vs Bank FDs: Factors to Evaluate Before Choosing
Before deciding between the two, consider the following key factors carefully.
1. Interest Rates and Returns
The applicable FD interest rate plays a big role in choosing between bank FDs and corporate FDs. Generally, corporate FDs offer higher interest rates compared to banks.
- Bank FD interest rates usually range from 3% to 7.75% p.a.
- Corporate FD interest rates can go up to 8.15% p.a.
So, if your goal is to earn higher returns on the principal invested and you’re open to slightly higher risk, corporate FDs can be worth considering.
2. Safety and Credit Risk
When comparing corporate FDs vs bank FDs, you should always evaluate how safe your investment is before chasing higher returns. Bank FDs are generally more secure because they are regulated and come with DICGC insurance of up to ₹5 lakh per depositor per bank. Corporate FDs, on the other hand, are not insured and depend entirely on the company’s financial health.
Before you invest, make sure to:
- Check the issuer’s credit rating from agencies like CRISIL, ICRA, or India Ratings.
- Look for AAA-rated or AA+ (Stable) FDs, which indicate stronger repayment capacity.
- Avoid unrated or low-rated issuers, as they may carry higher default risk.
3. Liquidity and Premature Withdrawal
Before choosing between corporate FDs and bank FDs, consider how easily you can access your money in case of an emergency. Bank FDs are more flexible, allowing premature withdrawals with minimal restrictions, while corporate FDs usually have tighter rules.
Here’s how they differ:
- Bank FDs: You can withdraw after 7 days, though no interest is paid if withdrawn within that period. Later withdrawals attract a small penalty on interest.
- Corporate FDs: Withdrawals are allowed only after 3 months. If redeemed between 3–6 months, you usually don’t earn interest, and after that, a penalty applies on the interest rate applicable.
4. Tax Benefits
Tax treatment is another key factor to consider when comparing corporate FDs vs bank FDs. Only tax-saving bank FDs with a 5-year lock-in qualify for deductions of up to ₹1.5 lakh under Section 80C of the Income Tax Act. Corporate FDs issued by NBFCs or companies do not provide this tax benefit.
Apart from this, also remember that:
- Interest earned on both types of FDs is fully taxable as per your income tax slab.
- TDS applies if annual interest exceeds ₹50,000 (₹1 lakh for senior citizens).
- Planning your FD investments based on post-tax returns (not just nominal rates) is important.
5. Your Financial Goals and Investment Tenure
When deciding between corporate FDs and bank FDs, think about what you’re investing for. Your goal and time horizon can help you pick the right option:
- Bank FDs give you flexibility with tenures ranging from 7 days to 10 years. They’re suitable if you’re saving for long-term needs like a home down payment or retirement.
- Corporate FDs usually last between 1 to 5 years and may work better for short-term goals such as a vacation or a gadget purchase.
Difference Between Corporate FD and Bank FD: Quick Overview
The key differences between a corporate FD and bank FD are outlined below:
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| Tax Benefits |
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| Premature Withdrawal |
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| Minimum Investment |
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| Credit Ratings |
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Bank FD vs Corporate FD: Which Is Better?
Choosing a side in the corporate FD vs. bank FD debate entirely depends on your financial goals, risk tolerance, and return expectations. Here’s a quick guide that may help you decide:
- If your main goal is safety and stable returns, a bank FD may be the right choice. It is considered ideal for retirees, senior citizens, and conservative investors who prefer steady income and low risk.
- If you can handle moderate risk and want to earn higher interest, corporate FDs might be more suitable. They can help you grow your money faster, provided you choose a company with a high credit rating.
Corporate Vs. Bank FD: Balancing Safety and Returns
Choosing between a corporate FD and a bank FD depends on your comfort with risk and your financial goals. Bank FDs offer safety, steady income, and liquidity, while corporate FDs (with higher credit ratings) can give higher returns if you’re open to moderate risk.
A mix of both may help you balance growth and stability in your portfolio. You can find both corporate and bank FDs from leading issuers on the GoldenPi Platform. This way, you can compare ratings, tenures, and interest rates with ease before investing!
FAQs on Corporate FDs Vs. Bank FDs
How do corporate FDs differ from bank FDs?
Corporate FDs are issued by companies and NBFCs to raise funds, while bank FDs are offered by banks. Corporate FD interest rates are usually higher than bank FDs, but they also carry higher risk due to the absence of insurance cover.
Bank FDs are insured by DICGC up to 5 lakhs, making them safer for conservative investors.
Are corporate FDs safe?
Corporate FDs don’t have DICGC insurance, so their safety depends on the issuing company’s credit rating.
Ratings such as [ICRA]AA+ (Stable) or IND AA+/Stable from India Ratings indicate strong financial stability and lower default risk. Always check these ratings before investing to assess deposit safety.
Who should consider investing in a corporate FD?
Corporate FDs may suit you if you’re looking for higher interest rates and are comfortable with some level of risk. They can fit well in a diversified portfolio, but if safety is your top priority, a bank FD might be better.
Do corporate FDs and bank FDs offer same interest rates?
No. Corporate FDs often offer higher interest rates than bank FDs. Higher interest rates are to compensate investors for the higher risks associated with such FDs. Banks offer lower rates since their FDs are insured by the DICGC insurance.
Can I make premature withdrawals from a bank FD?
Yes, you can close your bank FD after seven days, but early withdrawals attract a small penalty of 0.5%-1% on the interest earned. Corporate FDs usually allow withdrawals only after three months (no interest is paid if withdrawal within 3-6 months) and may deduct a higher penalty.
Disclaimer:
This information is for general information purposes only. GoldenPi makes no guarantee on the accuracy of the data provided here; the information displayed is subject to change and is provided on an as-is basis. Nothing contained herein is intended to or shall be deemed to be investment advice, implied or otherwise. Investments in the securities market are subject to market risks. Read all the offer-related documents carefully before investing.
Fixed Deposit schemes are regulated by the Reserve Bank of India. GoldenPi Securities Private Limited is a registered debt broker and acts as a distributor and not as a manufacturer of the product.
