Corporate FD vs Bank FD: Which is better?

There are various investment avenues which give you returns to help create wealth. If you are a risk-averse investor and are looking for fixed income investments, fixed deposits are the first choice which comes to mind. Fixed deposits give you guaranteed returns. You can choose your investment tenure and once the tenure is over you get a lump sum amount which consists of the principal amount which you invested and the interest earned.

While all of you must be familiar with bank fixed deposit interest rates, there are corporate fixed deposit schemes too which many of you don’t know. So, let’s understand about these deposits, see how they differ from bank fixed deposits and then judge which deposit is better –

What are corporate fixed deposits?

Corporate fixed deposits are deposits which are offered by companies and financial institutions. These deposits also have a fixed tenure and a fixed interest rate and promise guaranteed returns on maturity.

Difference between corporate fixed deposits and bank fixed deposits

Both corporate and bank fixed deposits differ from each other in the following respects –

• Period of deposit
  Bank FDs – you can choose a deposit period starting from 7 days and going up to 10 years
  Corporate FDs – these deposits are offered for different tenures which usually range from 6 months to 3 or 5 years.
• Rate of interest
  Bank FDs – the rate of interest offered by the bank on their fixed deposits ranges from 3.50% per annum to 8.5% per annum.
  Corporate FDs – the rate of interest offered by corporate fixed deposits is higher than those offered by banks. The interest rates can go as high as 10.50% or more depending upon the company offering the deposit.
• Tax benefits
  Bank FDs – you can claim a tax deduction on bank fixed deposits made for a term of 5 years or 10 years. Moreover, if you are a senior citizen, you can also claim a tax deduction on the interest earned on the bank FD up to INR 50, 000 under Section 80TTB.
  Corporate FDs – corporate fixed deposits do not give any tax benefit on the amount of investment done. Even in case of interests earned, the tax is applicable to the earnings. However, TDS is deducted from the interest earning only if it exceeds INR 5000.
• Safety of investment
  Bank FDs – bank fixed deposits are extremely safe. The Reserve Bank of India (RBI) assures the safety of your fixed deposit up to an amount of INR 1 lakh. This means that deposits of up to INR 1 lakh are guaranteed by the RBI even if the bank is liquidated.
  Corporate FDs – these fixed deposits are risky. The company offering the deposit might file for bankruptcy in which case your deposited amount is lost. There is, therefore, no guarantee on your investment and that is why corporate FDs offer higher interest rates.

Which one is better?

Corporate FDs score over bank FDs only in terms of interest. The risk associated with them cannot be ignored. Unless the company is rated highly by CRISIL, corporate FDs are not very safe. Bank FDs are safe and provide guaranteed returns even if the interest is low. So, choose your FD carefully after understanding the differences.

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