Corporate FDs vs Bank FDs: Which one should you opt for? Let’s compare | Business – Times of India
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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.
ALSO READ |Fixed deposit interest rates: Top banks offering up to 8.1% interest rates on 1-3 year FDs; check list
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 Name | Credit Rating | Interest Rates (% p.a.) | Additional interest rate for senior citizen | ||||
| Highest Rate Slab | Applicable tenure | 1-year tenure |
3-year tenure |
5-year tenure |
|||
| Shriram Finance* | ICRA – AA+/Stable IND AA+/Stable by India Ratings and Research |
8.27 | 50 months and 5 years | 7.53% | 8.18% | 8.27% | 0.50% |
| Mahindra Finance | CRISIL – AAA/Stable India Ratings – IND AAA/Stable | 8.05 | 3 years, 4 years and 5 years | 7.60% | 8.05% | 8.05% | 0.25% |
| Manipal Housing Finance Syndicate Ltd. | ACUITE – ACUITE A | 8.25 | 1 year, 2 years and 3 years | 8.25% | 8.25% | 7.75% | 0.25% |
| PNB Housing Finance Ltd. | CRISIL – AA/Positive CARE – AA/Positive |
7.85 | 36-47 months | 7.45% | 7.85% | 7.65% | 0.30% |
| Sundaram Home Finance | CRISIL – AAA/Stable ICRA – AAA/Stable |
7.9 | 4 years and 5 years | 7.45% | 7.75% | 7.90% | 0.35%-0.50% |
| Muthoot Capital Services Limited | CRISIL – A+/Stable | 8.38 | 5 years | 7.21% | 8.07% | 8.38% | 0.50% |
| ICICI Home Finance | CRISIL – AAA/Stable ICRA – AAA/Stable CARE – AAA/Stable |
7.65 | 3 to less than 5 years | 7.25% | 7.65% | 7.60% | 0.25% |
| Can Fin Homes Ltd. | ICRA – AAA/Stable | 7.5 | 3 years | 6.50% | 7.50% | 6.75% | 0.50% |
| Bajaj Finance Limited | CRISIL – AAA/Stable ICRA – AAA/Stable |
8.1 | 3-5 years | 7.40% | 8.10% | 8.10% | 0.25% |
| LIC Housing Finance Ltd. | CRISIL – AAA/Stable | 7.75 | 3 years and 5 years | 7.25% | 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 Name | Interest Rates (p.a.) | ||||
| Highest slab | 1-year tenure (%) | 3-year tenure (%) | 5-year tenure (%) | ||
| % | Tenure | ||||
| PRIVATE SECTOR BANKS | |||||
| Axis Bank | 7.20 | 17 months to less than 18 months | 6.70 | 7.10 | 7.00 |
| Bandhan Bank | 7.85 | 500 days | 7.25 | 7.25 | 5.85 |
| City Union Bank | 7.00 | 400 days | 6.75 | 6.50 | 6.25 |
| CSB Bank | 7.75 | 401 days | 5.00 | 5.75 | 5.75 |
| DBS Bank | 7.50 | 376 days to 540 days | 7.00 | 6.50 | 6.50 |
| DCB Bank | 8.00 | 25 months to 26 months | 7.15 | 7.60 | 7.40 |
| Federal Bank | 7.50 | 500 days | 6.80 | 7.00 | 6.60 |
| HDFC Bank | 7.25 | 18 months to less than 21 months | 6.60 | 7.00 | 7.00 |
| ICICI Bank | 7.20 | 15 months to 2 years | 6.70 | 7.00 | 7.00 |
| IDFC First Bank | 8.00 | 500 days | 6.50 | 7.25 | 7.00 |
| IndusInd Bank | 7.75 | 1 year to 2 years | 7.75 | 7.25 | 7.25 |
| Jammu & Kashmir Bank | 7.10 | 1 year to less than 2 years | 7.10 | 6.50 | 6.50 |
| Karur Vysya Bank | 7.50 | 444 days | 7.00 | 7.00 | 7.00 |
| Kotak Mahindra Bank | 7.40 | 390 days to less than 23 months | 7.10 | 7.00 | 6.20 |
| Nainital Bank | 7.05 | 400 days – Naini Plus 2023 Deposit Scheme | 6.70 | 6.25 | 5.75 |
| RBL Bank | 8.10 | 18 months to 2 years | 7.50 | 7.50 | 7.10 |
| SBM Bank India | 8.50 | Above 3 years 2 days to less than 5 years | 7.05 | 7.30 | 7.75 |
| South Indian Bank | 7.40 | 400 Days | 6.70 | 6.70 | 6.00 |
| Tamilnad Mercantile Bank | 7.75 | 444 days (TMB 444 – Special Deposit) | 7.00 | 6.50 | 6.50 |
| YES Bank | 7.75 | 18 month to less than 2 years | 7.25 | 7.25 | 7.25 |
| PUBLIC SECTOR BANKS | |||||
| Bank of Baroda | 7.25 | Above 2 years to 3 years | 6.85 | 7.25 | 6.50 |
| Bank of India | 7.25 | 2 years | 6.80 | 6.50 | 6.00 |
| Bank of Maharashtra | 6.50 | 1 year | 6.50 | 5.75 | 5.75 |
| Canara Bank | 7.25 | 444 days | 6.85 | 6.80 | 6.70 |
| Central Bank of India | 7.25 | 555 days | 6.75 | 6.50 | 6.25 |
| Indian Bank | 7.25 | 400 days – IND SUPER | 6.10 | 6.25 | 6.25 |
| Indian Overseas Bank | 7.30 | 444 days | 6.90 | 6.50 | 6.50 |
| Punjab National Bank | 7.25 | 400 days | 6.75 | 7.00 | 6.50 |
| Punjab & Sind Bank | 7.25 | 444 days | 6.20 | 6.00 | 6.00 |
| State Bank of India | 7.00 | 2 years to less than 3 years | 6.80 | 6.75 | 6.50 |
| Union Bank of India | 7.25 | 399 days | 6.75 | 6.50 | 6.50 |
| FOREIGN BANKS | |||||
| Deutsche Bank | 8.00 | Above 1 year to 3 years | 7.00 | 8.00 | 7.50 |
| HSBC Bank | 7.25 | 732 days to less than 3 years | 4.00 | 7.00 | 6.00 |
| Standard Chartered Bank | 7.50 | 2 years to less than 3 years | 7.15 | 7.10 | 6.75 |
| Source: Paisabazaar.com | |||||
| Interest rates as of 3 April 2024 | |||||
| Senior Citizen Bank Fixed Deposit Rates | ||||||
| Bank Name | Interest Rates (p.a.) | Additional rates offered to Super Senior Citizen* (over and above to senior citizen rates) | ||||
| Highest slab | 1-year tenure (%) | 3-year tenure (%) | 5-year tenure (%) | |||
| % | Tenure | |||||
| PRIVATE SECTOR BANKS | ||||||
| Axis Bank | 7.85 | 17 months to less than 18 months | 7.20 | 7.60 | 7.75 | — |
| Bandhan Bank | 8.35 | 500 days | 7.75 | 7.75 | 6.60 | — |
| City Union Bank | 7.50 | 400 days | 7.00 | 6.75 | 6.50 | — |
| CSB Bank | 7.75 | 401 days | 5.50 | 6.25 | 6.25 | — |
| DBS Bank | 8.00 | 376 days to 540 days | 7.50 | 7.00 | 7.00 | — |
| DCB Bank | 8.60 | 25 months to 26 months | 7.65 | 8.10 | 7.90 | — |
| Federal Bank | 8.00 | 500 days | 7.30 | 7.50 | 7.25 | — |
| HDFC Bank | 7.75 | 5 years 1 day to 10 years & 18 months to less than 21 months | 7.10 | 7.50 | 7.50 | — |
| ICICI Bank | 7.75 | 15 months to 2 years | 7.20 | 7.50 | 7.50 | — |
| IDFC First Bank | 8.50 | 500 days | 7.00 | 7.75 | 7.50 | — |
| IndusInd Bank | 8.25 | 1 year to 2 years | 8.25 | 7.75 | 7.75 | — |
| Jammu & Kashmir Bank | 7.60 | 1 year to less than 2 years | 7.60 | 7.00 | 7.00 | — |
| Karur Vysya Bank | 8.00 | 444 days | 7.40 | 7.40 | 7.40 | — |
| Kotak Mahindra Bank | 7.90 | 390 days to less than 23 months | 7.60 | 7.60 | 6.70 | — |
| Nainital Bank | 7.55 | 400 days – Naini Plus 2023 Deposit Scheme | 7.20 | 6.75 | 6.25 | 0.10% on all tenures |
| RBL Bank | 8.60 | 18 months to 2 years | 8.00 | 8.00 | 7.60 | 0.25% on all tenures |
| SBM Bank India | 9.00 | Above 3 years 2 days to less than 5 years | 7.55 | 7.80 | 8.25 | — |
| South Indian Bank | 7.90 | 400 Days | 7.20 | 7.20 | 6.50 | — |
| Tamilnad Mercantile Bank | 8.25 | 444 days (TMB 444 – Special Deposit) | 7.50 | 7.00 | 7.00 | — |
| YES Bank | 8.25 | 18 month to less than 2 years | 7.75 | 8.00 | 8.00 | — |
| PUBLIC SECTOR BANKS | ||||||
| Bank of Baroda | 7.75 | Above 2 years to 3 years | 7.35 | 7.75 | 7.15 | — |
| Bank of India | 7.75 | 2 years | 7.30 | 7.25 | 6.75 | 0.15% on tenures of 180 days to 10 years |
| Bank of Maharashtra | 7.00 | 1 year | 7.00 | 6.25 | 6.25 | — |
| Canara Bank | 7.75 | 444 days | 7.35 | 7.30 | 7.20 | 0.10% on 444 days |
| Central Bank of India | 7.75 | 555 days | 7.25 | 7.00 | 6.75 | — |
| Indian Bank | 7.75 | 400 days – IND SUPER | 6.60 | 6.75 | 6.75 | 0.25% on all tenures |
| Indian Overseas Bank | 7.80 | 444 days | 7.40 | 7.00 | 7.00 | 0.25% on all tenures |
| Punjab National Bank | 7.75 | 400 days | 7.25 | 7.50 | 7.00 | 0.30% for tenures up to 5 years |
| Punjab & Sind Bank | 7.75 | 444 days | 6.70 | 6.50 | 6.50 | 0.15% on tenure of 444 days |
| State Bank of India | 7.50 | 2 years to less than 3 years | 7.30 | 7.25 | 7.50 | — |
| Union Bank of India | 7.75 | 399 days | 7.25 | 7.00 | 7.00 | 0.25% on all tenures |
| FOREIGN BANKS | ||||||
| Deutsche Bank | 8.00 | Above 1 year to 3 years | 7.00 | 8.00 | 7.50 | — |
| HSBC Bank | 7.75 | 732 days to less than 3 years | 4.50 | 7.50 | 6.50 | — |
| Standard Chartered Bank | 8.00 | 2 years to less than 3 years | 7.65 | 7.60 | 7.25 | — |
| Note: *Depositors aged 80 years and above | ||||||
| Source: Paisabazaar.com | ||||||
| Interest rates as of 3 April 2024 | ||||||
ALSO READ | PPF account maturity: What are the options available once your Public Provident Fund matures?
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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