Bank FDs have guaranteed returns and the principal amount is safe. However, corporate FDs usually offer higher interest rates than bank FDs due to the increased risk.
For investors who want stability and reliable returns, fixed deposits have long been a preferred choice. FDs offer assured returns and provide a sense of financial security. FDs (Fixed Deposits) are not just limited to traditional bank fixed deposits. In recent years, corporate FDs have also become popular as an alternative investment option. Many investors face a dilemma while choosing between corporate FDs and bank FDs. While both are aimed at growing your savings, you should know some important differences between these two FDs before making a decision.
What is the meaning of bank FD?
Bank FD (Fixed Deposit) is a financial instrument offered by banks where you deposit a lump sum amount at a predetermined interest rate for a fixed period. It is considered a low-risk investment as there is guaranteed return and the principal amount is safe. Bank FDs offer different interest rates depending on the tenure and are usually insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to ₹5 lakh.
What is meant by Corporate FD?
A corporate FD is a fixed deposit offered by companies or corporations. Like a bank FD, you deposit an amount for a fixed period and the company provides you interest on the principal. However, corporate FDs usually offer higher interest rates than bank FDs due to the increased risk. This FD does not have guaranteed returns by government agencies, making it a bit riskier. Therefore, you should carefully assess the company’s financial position before investing. Corporate FDs are perfect for those who are willing to take more risk in exchange for potentially higher returns.
What is the difference between bank FD and corporate FD
The interest rate in bank FDs is usually low. Talking about the safety of the deposit, it is generally considered safe due to RBI regulations and DICGC insurance up to Rs 5 lakh. You can also get tax exemption on FDs with a lock-in period of 5-10 years. According to Tata Capital Moneyfy, a penalty of 1-2% interest is charged on premature withdrawal in bank FDs. The investment period in bank FDs ranges from 7 days to 10 years.
Whereas, the interest rate in corporate FDs can be higher. Also, it can potentially give better returns. Talking about the safety of the deposited money, the risk in corporate FDs is higher due to the dependence on the financial support of the issuing institution. You do not get any tax exemption on investment in corporate FDs. Also, if you withdraw the money deposited in corporate FD before time, then 2-3% interest is charged. Investment in corporate FD can be made for 6 months to 5 years.
Conclusion
That is, overall, by investing in bank FD, you get guaranteed returns and your money is also safe. Yes, the interest rate may be slightly lower. But in corporate FD, you may get higher interest rate, but there is also a risk regarding the deposited money.
(Disclaimer: This is not an investment advice but just an information. Consult your financial advisors before taking any decision related to money.)
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