INSUBCONTINENT EXCLUSIVE:
Interest rates on bank fixed deposit accounts are higher than those on savings bank accounts.
Fixed deposits (FDs) are savings instruments that offer attractive interest rates for a
particular amount of money that is invested for a fixed period of time
Fixed deposits are offered by both banks and companies
Thus, bank fixed deposits and corporate fixed deposits are the two types of fixed deposits
People, however, usually know about bank fixed deposits only
Besides, bank fixed deposits, these days, can be created only with a click
Banks have made it so easy to create fixed deposits that people often think of investing in them for the sole purpose of convenience
But what are corporate fixed depositsGiven below are comparisons between bank fixed deposits and corporate fixed deposits:Meaning of bank
fixed deposits, corporate fixed depositsBank fixed deposits are offered by banks
Usually, interest rates offered on bank fixed deposit accounts are higher than those on savings bank accounts.Corporate fixed deposits are
When companies need to raise cash in a hurry they offer fixed deposits at attractive interest rates
Investors are issued deposit certificates of different tenures at fixed interest rates.Interest rates on bank fixed deposits, corporate
fixed depositsBanks like State Bank of India (SBI), HDFC Bank, ICICI Bank, Axis Bank and Punjab National Bank offer fixed deposit interest
Small finance banks like Fincare Small Finance Bank, AU Small Finance Bank, Ujjivan Small Finance Bank and Equitas Small Finance Bank offer
fixed deposit interest rates up to 9 per cent
Senior citizen interest rates on bank fixed deposits are higher than those for people under 60 years of age
The interest rates vary according to tenures.Companies that have high ratings offer interest rates on different tenures of corporate fixed
deposits of 1-5 Year tenure
The interest rates varies from 9.25 per cent - 10.75 per cent depending on the tenure
Companies with a lower rating offer higher interest rates than the highly rated ones to make up for the default risk.However, experts
suggest that companies which offer fixed deposit interest rates close to 15 per cent per annum should be avoided
"Many new companies and those with an uncertain future regarding future policy offer interest higher than 12 per cent
These need to be viewed with caution
Companies do not need to be mandatorily rated
Even if they do, disclosure of the rating is up to the company
However, companies with good ratings can easily obtain deposits from the public," said Rakesh Singh, Retail Head, SVC Bank.Risks associated
with bank fixed deposits, corporate fixed depositsBank fixed deposits are secured by Reserve Bank of India up to Rs 1 lakh, which means that
each depositor will get this sum if a bank goes bankrupt or does not pay back one's money.However, corporate fixed deposits do not offer any
The company might suffer heavy losses and be out of funds
It might default on interest payments and might not return the mature amount
Thus, this makes corporate fixed deposits a very risky investment
In order to compensate this risk, companies offer higher interest rates on fixed deposits than banks
The higher the credit risk, the greater is the interest rate offered."Corporate fixed deposit scores higher than bank deposits given the
equivalent credit rating and higher rate of interest
But customers must ensure that they invest in high-rated corporate deposit with AAA or equivalent rating, and avoid choosing low-credit
rating company," said Dinesh Rohira, Founder and CEO, 5nance.com.Taxation on bank fixed deposits, corporate fixed depositsBank fixed
deposits with lock-in periods of five or ten years offer income tax benefit under Section 80C of the Income Tax Act
However, they cannot be withdrawn before the lock-in period
Bank fixed deposits with premature withdrawal facility do not offer any tax benefits
the TDS (tax deducted at source) if the annual interest exceeds Rs 5,000
There is no capital gains tax on these deposits."Bank FDs are recommended as tax-saving FDs, which generally come with a five-year
lock-in-period, give taxpayers the benefit of Section 80C
Further, senior citizens enjoy an exemption up to Rs 50,000 from the interest they receive from FDs
depositOffered byBankCorporate CompanyRate of interestAverageHighTenure periodRanges from months to years6 months to 3 yearsRisk
involvedLowHighMedium of investmentCertificate of depositCertificate of deposit(As told by Mr Singh, SVC Bank) Premature withdrawal on bank
fixed deposits, corporate fixed depositsA bank fixed deposit can be withdrawn prematurely by paying a penalty of around 2 per cent on the
interest rate accrued.Some corporate fixed deposits do not allow premature withdrawal for a period of three-six months
If premature withdrawal is made, no interest accrues on the deposit
On premature withdrawal after six-twelve months, certain companies deduct around 2-3 per cent on the interest rate offered.(: Five Tempting
Short-Term Investment Options To Choose From)What should be your pick: bank fixed deposits or corporate fixed deposits"Investing in a
corporate fixed deposit of a short tenure is the way to go rather than invest in deposits of a longer tenure
One does not know what the business cycle (of the company) would be over a longer period of time and deposits of a shorter tenure are
generally safer to invest in
However, one should avoid deposits in companies about which one knows littleThey certainly come nowhere near the ease and comfort of a bank
A through research is necessary to invest in a corporate fixed deposit in order to gainfully profit from the higher interest rates offered,"
