Mar-29-2024Bank FD Vs Corporate FD: Which One's a Better Option
In India, people choose fixed deposits (FDs ) more than any other investments. It is a good option for those who want safety & fixed returns.
There are main two types of Fixed Deposits (FDs):
1. Bank FD
2. Corporate FD
You might think, why pick Corporate FDs instead of bank FDs, or the other way around? Let’s understand that in detail:
What is a Bank FD?
A Bank Fixed Deposit (FD) is a deposit scheme offered by banks that offers a fixed rate of return over a period of time.
Advantages of Bank FDs:
There are 3 main advantages of Bank FD (Fixed Deposits):
Security:
When you open the Bank FD account it offers secured & fixed returns. Even if rates drop, your interest stays fixed. FDs are safer than other investment options.
Return on investment:
ROI (Return on investment) is the main advantage of Bank FDs. Your FD (Fixed Deposit) return depends on the interest rate. You can choose to get interest monthly, quarterly, or other options.
Flexibility:
You can decide the duration of the deposit, and many banks allow early withdrawal with some fees.
What is Corporate FD?
A Corporate Fixed Deposit (FD) is a deposit scheme offered by non-banking financial companies (NBFCs) or corporate companies, that offers a fixed rate of return over a period of time.
Corporate FD`s (Fixed Deposit) risk is associated with the company`s financial stability.
Advantages of Corporate FDs:
There are 3 main advantages of Corporate Fixed Deposits:
Higher Returns:
A higher return is one of the main advantages of Corporate FD Because it offers higher interest rates than banks, making them a better choice for investors.
They provide stability and higher returns, especially beneficial for senior citizens.
Flexibility of Tenure:
Corporate FD (Fixed Deposit) offers more flexibility & customization than Bank FD (Fixed Deposit). You can choose FD`s duration based on your goals and interest rates. It can be withdrawn from FD prematurely, too.
Assured Returns:
Corporate FD (Fixed Deposit) offers assured returns. The rate of return is fixed because your investment is not invested in the market. Corporate FDs are regulated by the RBI and offer stable returns.
Bank FD Vs Corporate FD:
| Aspect |
Bank FDs |
Corporate FDs |
| Issuer |
Banks |
Corporations or NBFCs |
| Tenure |
Typically ranges from 7 days to 10 years |
Typically ranges from 1 year to 7 years |
| Risk Level |
Low, government-backed with insurance |
Higher, dependent on issuing company`s financial stability |
| Interest Rates |
Generally lower, conservative (Ranges between 4.5%-6.25%) |
Typically higher, offering potentially better returns (Ranges between 5.5%-7.5% (for AAA-rated) |
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Yoshi Tannamuri |
Typically higher, offering potentially better returns (Ranges between 5.5%-7.5% (for AAA-rated) |
| Premature |
Offers better liquidity options with minimal penalties |
May have restrictions or penalties for premature withdrawal |
| Suitability |
Risk-averse investors |
Income-focused investors |
| Regulatory Oversight |
Highly regulated by RBI |
Less stringent regulatory oversight |
| Accessibility |
Easily accessible through branches and online banking |
May require research and direct approach to issuing entity |
Conclusion:
Corporate FDs and Bank FDs both have their pros and cons. Your choice should align with your financial goals, risk comfort, and expected returns
A good strategy is to diversify your money in both of them so it will help to reduce the overall risk. As we know bank FDs are safer than Corporate FDs. While Corporate FDs give higher returns.
Always research thoroughly before making any financial decisions, and remember that diversifying investments can reduce risk and increase returns.