FD or Fixed Deposits are a type of investment that provides fixed, guaranteed returns over the specified period. However, the Fixed Deposit interest rate may vary from one financial institution to institutions and also depend on the amount invested, category of depositor (whether regular or senior citizen) and the tenure.
There are different types of Fixed Deposits, such as bank FDs and corporate FDs and both offer distinct benefits. Let us understand in detail about corporate and bank Fixed Deposits.
What is a bank Fixed Deposit?
A bank Fixed Deposit is when you place a lump sum of money with a bank for a fixed period. The Fixed Deposit interest rate may vary from bank to bank and other factors like deposit amount, tenure and more. Furthermore, most banks also offer higher Fixed Deposit Rates for Senior Citizens.
These kinds of FDs are generally ideal for investors seeking safe options, as the returns under the bank FDs are predictable.
What is a corporate Fixed Deposit?
A corporate Fixed Deposit is an investment option offered by companies or non-banking financial institutions. Like bank FDs, individuals deposit the principal amount with a corporate entity for a specified period at a predetermined interest rate.
Generally, the interest rates on corporate FDs are higher than those on traditional bank FDs but come with more risk. These FDs are ideal for individuals willing to take on risk for higher returns.
Difference between corporate FDs and bank FDs?
Let us compare the two FDS: bank FD and corporate FD, on different parameters.
Parameters | Bank FDs | Corporate FDs |
| Interest rates | The bank Fixed Deposit Interest Rates are generally lower due to guaranteed returns. | The corporate Fixed Deposits Interest Rates are typically higher, leading to better potential returns. |
| Accessibilty | These types of Fixed Deposit options are easily accessible through online and offline channels. | These FDs are easily accessible but individuals need to look for NBFCs and companies offering such FDs that suit their goals. |
| Risk factor | The risk involved in bank FDs is generally lower. The Reserve Bank of India generally regulates these kinds of FDs. | The corporate FDs come with high risk factors. The risk is generally associated with the financial stability of a company. |
| Tax benefits | Certain FDs that come with a 5 to 10-year lock-in period generally come with a tax benefit. | These types of FD generally do not come with any tax exemptions. |
| Tenure Period | Bank FDs come with various tenure options including short-term and long-term. | Corporate FDs also come with flexible tenure options based on your financial goals. |
Tips to choose between bank and corporate FDs
Choosing between corporate and bank FDs based on your financial needs. Here are some tips that help you make informed decisions.
- It is best to diversify some funds in both FD types based on your risk appetite to optimise returns and safety.
- If you can accept moderate risk for higher returns and have confidence in the issuing company’s financial strength, consider corporate FDs. However, if you want stable returns, then bank FDs are more suitable.
Key takeaways
Understanding the difference between bank FDs and corporate FDs is crucial for better financial investment. It is best to choose FDs that align with your personal risk profile and financial needs instead of focusing only on Fixed Deposit interest rates. This will ensure your money grows safely while meeting your individual needs.
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