FD Comparison: There are two most common and popular types of fixed deposits in practice, the first is Bank FD and the second is Corporate FD. Both these term deposits are good investment options for investors with their own financial benefits and challenges. Most of the people of the country know about bank FD but many investors are still not familiar with corporate FD. Know here the similarities and differences between bank FD and corporate FD, their risks and benefits.
Know about bank FD
Bank FD is a financial investment tool in which people deposit their money with banks. For this there is a limited and fixed time which is called the tenure of the deposit. The depositor gets a pre-determined interest rate on this deposited amount. If the bank FD is broken for any need or money is withdrawn from it, then penalty is imposed on it.
What is corporate FD?
Corporate FD is also a type of fixed deposit in which non-banking finance companies and other companies allow investors to deposit money for a fixed period of time. Companies pay more interest on this FD than banks and other finance companies. These companies have the right to take deposits under the Company Law.
What are the benefits of corporate FD?
The interest rates available on the amount deposited in corporate FD are higher, hence it is considered better to invest in it.
What is the difference between corporate FD and bank FD?
Corporate FDs offer higher interest rates than banks. In bank FD, customers are given the facility of term deposit at low interest rates.
You can withdraw money from corporate FD in less time as compared to bank FD. According to the guidelines of the Reserve Bank of India, a penalty has to be paid for withdrawing money within a period of three months of opening a corporate FD.
Which is more risky between corporate FD and bank FD?
Investors’ money up to Rs 5 lakh remains safe in bank FD. Under the Deposit Insurance and Credit Guarantee Corporation, bank FDs are insured for at least this amount.
Financial risk is higher in corporate FD because no statutory guarantee is given by the companies in it.
Corporate FDs of housing finance companies and non-banking financial companies offer the highest interest compared to banks. Corporate FD does not have insurance cover from Deposit Insurance and Credit Guarantee Corporation, hence before depositing money in FD, definitely check the rating given to the company by credit rating agencies like CRISIL, CARE or ICRA.
Features of corporate FD
NBFCs and HFCs offer many options for corporate FDs. Depositors can earn interest monthly, quarterly (three months), semi-annually (six months) and annually.
Corporates can also take loan against FD which can be taken for cumulative and non-cumulative schemes. On taking loan against corporate FD, many financial institutions charge 2 percent more interest than the fixed deposit rate.
Although there is no guarantee on corporate FD, but in FD opened in a scheduled bank, insurance cover of up to Rs 5 lakh is given on the cumulative FD.
Know the tax calculations on corporate FD and bank FD
The interest received from corporate FD is taxed as per the tax slab of the depositor. Banks and companies levy tax according to the income tax slab in which the investor falls.
Under the Income Tax Act 1961, if the interest earned on bank FD is more than Rs 10,000 in a year, then Tax Deduction at Source (TDS) is done. Its limit in company FD is Rs 5000.
Which is better in terms of liquidity
Corporate FDs may attract high penalties for premature withdrawal and many times they do not offer premature withdrawal. In comparison, bank FD provides better facility of liquidity in which investors can withdraw their money by paying small penalty.
Tighten up on tax benefits
Tax benefits are available in some bank FDs which have a lock-in period of 5-10 years. There is no tax exemption on corporate FD.
Documents required for Bank FD/Corporate FD
- Aadhar card
- Voter ID Card
- Passport size photo
- Ration card
- Passport
- PAN card
- Government recognized address proof
What to choose between bank FD and corporate FD?
Investors should take this decision based on their discretion and financial goals as well as risk appetite, for which they should also be aware of the risks and returns of both the FDs. If you do not have the ability to take risk then you should choose bank FD. If you are a professional investor and have the ability to tolerate high risk for higher returns, then you should go for corporate fixed deposits.
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