New Delhi: Fixed deposits are a popular choice for investors seeking safety and guaranteed returns. Both banks and corporates provide fixed deposit options, but deciding between the two involves considering various factors. Let’s explore the key aspects to weigh when making this financial decision.
Bank FDs vs. Corporate FDs
Bank fixed deposits are often considered safer due to government guarantees and DICGC insurance, offering security up to Rs 5 lakh. In contrast, corporate fixed deposits lack government backing, making their safety dependent on the financial health and reputation of the issuing company. Investors should prioritize safety when deciding where to park their money. (Also Read: Decoding Budget Terms: What Is Direct Tax? Definition, Types, And More – Check Here)
Bank FDs vs. Corporate FDs: Interest Rates
The rate of interest plays a significant role in determining the return on investment. Corporate fixed deposits generally offer higher and guaranteed interest rates compared to banks. (Also Read: Low Investment, High Returns Business Idea: Invest Rs 8 Lakh To 10 Lakh And Earn Bumper Amount)
This can result in better returns over the investment tenure, especially considering the options for cumulative and non-cumulative interest payouts. Cumulative payouts, involving reinvestment, can lead to compounding returns and potentially higher payouts.
Bank FDs vs. Corporate FDs: Tenure
For those considering fixed deposits as a long-term investment, the duration of the investment becomes crucial. Corporate fixed deposits typically offer tenures ranging from six months to 5 years, while bank fixed deposits provide more flexibility with tenures spanning from months to years.
If you’re looking for extended investment periods, bank fixed deposits might be the preferred choice.
Bank FDs vs. Corporate FDs: Risk
While fixed deposits are generally secure, it’s essential to assess the level of risk and one’s risk tolerance. Corporate fixed deposits, being unsecured, come with a risk of company insolvency.
However, they remain unaffected by market fluctuations. Bank fixed deposits, on the other hand, are secure and low-risk, with the RBI providing coverage up to 1 lakh rupees per fixed deposit and sometimes up to 5 lakhs in specific cases.
Bank FDs vs. Corporate FDs: Tax Benefits
Fixed deposits are subject to taxes, but there are potential tax benefits to explore. Bank fixed deposits generally outperform corporate fixed deposits in terms of tax-saving options.
Many banks offer tax benefits under Section 80C of the Income Tax Act, with a lock-in period ranging from five to ten years. Investors should be mindful of potential tax deductions for early withdrawal or interest exceeding Rs 10,000, which may be applied directly by the bank.