Corporate FDs vs Bank FDs: Which one should you opt for? Let’s compare | Business

Corporate FDs vs Bank FDs: When it comes to investing your money, fixed deposits (FDs) are a popular choice for their guaranteed returns and security. However, choosing between corporate FDs and bank FDs can be a daunting task. Here’s how both the FDs compare:

Corporate FDs and Bank FDs

According to ET, banks offer various fixed deposit options for both short-term and long-term investors.Fixed deposits come with several benefits. They provide a guaranteed return on investment. Investors also have flexibility in choosing the investment duration and amount. Additionally, fixed deposits can be used as collateral for loans, and in emergencies, you can close the deposit and withdraw funds instantly.
Many companies, including corporations and Non-Banking Financial Companies (NBFCs), operate like banks, collecting funds and offering interest for a set period. Corporate fixed deposits are their version of fixed deposit schemes. Like bank fixed deposits, corporate FDs offer interest earnings and flexibility in choosing investment amounts and durations.
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Corporate FD vs Bank FDs: Difference in interest rates

Corporate FDs often tout higher interest rates compared to bank FDs, with rates going up to 9%. However, it’s important to consider various factors beyond just the interest rate.

Company Fixed Deposit Rates
Company NameCredit RatingInterest Rates (% p.a.)Additional interest rate for senior citizen
Highest Rate SlabApplicable tenure1-year
tenure
3-year
tenure
5-year
tenure
Shriram Finance*ICRA – AA+/Stable
IND AA+/Stable by India Ratings and Research
8.2750 months and 5 years7.53%8.18%8.27%0.50%
Mahindra FinanceCRISIL – AAA/Stable India Ratings – IND AAA/Stable8.053 years, 4 years and 5 years7.60%8.05%8.05%0.25%
Manipal Housing Finance Syndicate Ltd.ACUITE – ACUITE A8.251 year, 2 years and 3 years8.25%8.25%7.75%0.25%
PNB Housing Finance Ltd.CRISIL – AA/Positive
CARE – AA/Positive
7.8536-47 months7.45%7.85%7.65%0.30%
Sundaram Home FinanceCRISIL – AAA/Stable
ICRA – AAA/Stable
7.94 years and 5 years7.45%7.75%7.90%0.35%-0.50%
Muthoot Capital Services LimitedCRISIL – A+/Stable8.385 years7.21%8.07%8.38%0.50%
ICICI Home FinanceCRISIL – AAA/Stable
ICRA – AAA/Stable
CARE – AAA/Stable
7.653 to less than 5 years7.25%7.65%7.60%0.25%
Can Fin Homes Ltd.ICRA – AAA/Stable7.53 years6.50%7.50%6.75%0.50%
Bajaj Finance LimitedCRISIL – AAA/Stable
ICRA – AAA/Stable
8.13-5 years7.40%8.10%8.10%0.25%
LIC Housing Finance Ltd.CRISIL – AAA/Stable7.753 years and 5 years7.25%7.75%7.75%0.25%
*At Monthly Rests. Additional interest of 0.25% p.a on all renewals, where the deposit is matured. Additional interest of 0.10% p.a. for women depositors.
Data as on 3rd April 2024
Source: Paisabazaar.com

Bank Fixed Deposit Rates
Bank NameInterest Rates (p.a.)
Highest slab1-year tenure (%)3-year tenure (%)5-year tenure (%)
%Tenure
PRIVATE SECTOR BANKS
Axis Bank7.2017 months to less than 18 months6.707.107.00
Bandhan Bank7.85500 days7.257.255.85
City Union Bank7.00400 days6.756.506.25
CSB Bank7.75401 days5.005.755.75
DBS Bank7.50376 days to 540 days7.006.506.50
DCB Bank8.0025 months to 26 months7.157.607.40
Federal Bank7.50500 days6.807.006.60
HDFC Bank7.2518 months to less than 21 months6.607.007.00
ICICI Bank7.2015 months to 2 years6.707.007.00
IDFC First Bank8.00500 days6.507.257.00
IndusInd Bank7.751 year to 2 years7.757.257.25
Jammu & Kashmir Bank7.101 year to less than 2 years7.106.506.50
Karur Vysya Bank7.50444 days7.007.007.00
Kotak Mahindra Bank7.40390 days to less than 23 months7.107.006.20
Nainital Bank7.05400 days – Naini Plus 2023 Deposit Scheme6.706.255.75
RBL Bank8.1018 months to 2 years7.507.507.10
SBM Bank India8.50Above 3 years 2 days to less than 5 years7.057.307.75
South Indian Bank7.40400 Days6.706.706.00
Tamilnad Mercantile Bank7.75444 days (TMB 444 – Special Deposit)7.006.506.50
YES Bank7.7518 month to less than 2 years7.257.257.25
PUBLIC SECTOR BANKS
Bank of Baroda7.25Above 2 years to 3 years6.857.256.50
Bank of India7.252 years6.806.506.00
Bank of Maharashtra6.501 year6.505.755.75
Canara Bank7.25444 days6.856.806.70
Central Bank of India7.25555 days6.756.506.25
Indian Bank7.25400 days – IND SUPER6.106.256.25
Indian Overseas Bank7.30444 days6.906.506.50
Punjab National Bank7.25400 days6.757.006.50
Punjab & Sind Bank7.25444 days6.206.006.00
State Bank of India7.002 years to less than 3 years6.806.756.50
Union Bank of India7.25399 days6.756.506.50
FOREIGN BANKS
Deutsche Bank8.00Above 1 year to 3 years7.008.007.50
HSBC Bank7.25732 days to less than 3 years4.007.006.00
Standard Chartered Bank7.502 years to less than 3 years7.157.106.75
Source: Paisabazaar.com
Interest rates as of 3 April 2024

Senior Citizen Bank Fixed Deposit Rates
Bank NameInterest Rates (p.a.)Additional rates offered to Super Senior Citizen* (over and above to senior citizen rates)
Highest slab1-year tenure (%)3-year tenure (%)5-year tenure (%)
%Tenure
PRIVATE SECTOR BANKS
Axis Bank7.8517 months to less than 18 months7.207.607.75
Bandhan Bank8.35500 days7.757.756.60
City Union Bank7.50400 days7.006.756.50
CSB Bank7.75401 days5.506.256.25
DBS Bank8.00376 days to 540 days7.507.007.00
DCB Bank8.6025 months to 26 months7.658.107.90
Federal Bank8.00500 days7.307.507.25
HDFC Bank7.755 years 1 day to 10 years & 18 months to less than 21 months7.107.507.50
ICICI Bank7.7515 months to 2 years7.207.507.50
IDFC First Bank8.50500 days7.007.757.50
IndusInd Bank8.251 year to 2 years8.257.757.75
Jammu & Kashmir Bank7.601 year to less than 2 years7.607.007.00
Karur Vysya Bank8.00444 days7.407.407.40
Kotak Mahindra Bank7.90390 days to less than 23 months7.607.606.70
Nainital Bank7.55400 days – Naini Plus 2023 Deposit Scheme7.206.756.250.10% on all tenures
RBL Bank8.6018 months to 2 years8.008.007.600.25% on all tenures
SBM Bank India9.00Above 3 years 2 days to less than 5 years7.557.808.25
South Indian Bank7.90400 Days7.207.206.50
Tamilnad Mercantile Bank8.25444 days (TMB 444 – Special Deposit)7.507.007.00
YES Bank8.2518 month to less than 2 years7.758.008.00
PUBLIC SECTOR BANKS
Bank of Baroda7.75Above 2 years to 3 years7.357.757.15
Bank of India7.752 years7.307.256.750.15% on tenures of 180 days to 10 years
Bank of Maharashtra7.001 year7.006.256.25
Canara Bank7.75444 days7.357.307.200.10% on 444 days
Central Bank of India7.75555 days7.257.006.75
Indian Bank7.75400 days – IND SUPER6.606.756.750.25% on all tenures
Indian Overseas Bank7.80444 days7.407.007.000.25% on all tenures
Punjab National Bank7.75400 days7.257.507.000.30% for tenures up to 5 years
Punjab & Sind Bank7.75444 days6.706.506.500.15% on tenure of 444 days
State Bank of India7.502 years to less than 3 years7.307.257.50
Union Bank of India7.75399 days7.257.007.000.25% on all tenures
FOREIGN BANKS
Deutsche Bank8.00Above 1 year to 3 years7.008.007.50
HSBC Bank7.75732 days to less than 3 years4.507.506.50
Standard Chartered Bank8.002 years to less than 3 years7.657.607.25
Note: *Depositors aged 80 years and above
Source: Paisabazaar.com
Interest rates as of 3 April 2024

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Key differences between Corporate FDs and Bank FDs:

Now, let’s take a look at the differences between corporate FDs and bank FDs according to the information provided by Nirmal Bang’s website.

Tenure

Fixed Deposits are commonly chosen for long-term investments, especially by older investors looking for a secure retirement. The duration of the investment is crucial in deciding when investors will receive returns before the maturity date. Corporate fixed deposits usually have tenures ranging from six months to 5 years, which is shorter compared to bank fixed deposits. Bank fixed deposits offer tenures spanning from months to several years, often longer than corporate fixed deposits. For those interested in longer investment periods, bank fixed deposits are generally preferred over corporate fixed deposits.

Investment risk

Before investing, it’s wise to evaluate the risks involved and understand your own risk tolerance. While fixed deposits are generally considered safe, they’re not entirely risk-free, particularly over the long term. Corporate fixed deposits, being unsecured, carry higher risks, as there’s a chance of the company encountering financial difficulties or failing, states the ET report. However, a benefit of corporate fixed deposits is that they’re not affected by market fluctuations. On the other hand, bank fixed deposits are secured investments with lower risks, providing investors with a higher level of security. In 2020, the government increased the insurance cover on deposits to Rs 5 lakh, providing added protection for investors. This enhancement in deposit insurance came into effect on February 4, 2020.

Premature withdrawal penalty

When urgent funds are needed, individuals often consider withdrawing from their fixed deposits. However, both banks and corporations typically charge penalties for premature withdrawals before the completion of the tenure. Comparing penalty structures, bank fixed deposits usually have lower penalties, typically around 1-2% on the interest for premature withdrawals. Corporate fixed deposits vary in their policies; not all allow withdrawals before three to six months from the investment date, and if permitted, no interest accrues. Additionally, for withdrawals made after six to twelve months, certain companies may impose penalties ranging from 2-3 percent. Considering these penalties, bank fixed deposits may be a better option for those expecting premature withdrawals.

Tips for choosing Corporate FDs

Before investing in corporate fixed deposits, it’s essential to consider the following factors the report states:
1. Credit rating: Look for corporate FDs with higher credit ratings. These ratings reflect the underlying risk associated with the company offering the FD. Higher ratings typically indicate lower risk.
2. Company background: Assess the business viability of the company by examining its Financial Statements and Management Discussion and Analysis (MD & A). This information can provide insights into the company’s financial health and performance.
3. Repayment history: Review the company’s repayment history to evaluate its credit score, credibility, and stability. A strong repayment history suggests that the company is reliable and capable of honoring its financial obligations.

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