Corporate FD vs Bank FD: Which Fixed Deposit is better for you?

Fixed deposit is the most popular investments in India, which is generally regarded as one of the best and safest investments in the country. The Fixed Deposit is one of the safest investments as they offer risk free guaranteed returns. Corporates are also offering fixed deposits and are generally for shorter terms than those provided by banks known as corporate FD.

Listed below are some of the primary differences between Corporate FD and Bank FD

Rate of Interest

Before you decide where to invest your money, there are some important factors you have to consider. The most significant factors that the investor should consider is how much returns they will receive, which also exists with fixed deposits in the form of interest rates. The interest rate on corporate FD tends to be higher than the interest rate on those offered by banks. Those investing in corporate FD schemes will enjoy a more elevated and guaranteed interest rate throughout their tenure than investing in bank fixed deposits. Furthermore, the fact that most corporate FD offers both cumulative and non-cumulative interest rate payments is an incentive for investors to invest in corporate fixed deposits. When the interest is reinvested, it leads to a better payout and compounded returns when the interest is cumulatively paid.

Duration of the tenure

Fixed Deposits are a good long-term investment, and most investors in the later stages of their lives tend to invest in this type of investment to ensure a comfortable retirement. As a result, the tenure period is an essential factor in determining how long until the investment maturity the investor will receive their returns. A fixed deposit in corporate banks is generally fixed for a period ranging from six months to five years, while a fixed deposit in a bank is fixed for a period ranging from months to years, which is much longer than what a fixed deposit in corporate bank offers. There is no doubt that the best option for those who wish to invest for a long period in FDs is to opt for bank fixed deposits as opposed to corporate FD schemes.

Investment Risk

Before investing your hard earn money the most important things you need to do is gather as much information as possible about the risks involved. Fixed deposits can be a safe investment, but they also have some risks on a long-term basis. Corporate FDs are usually unsecured, and there is always a question of whether the company will collapse. Consequently, corporate FD is risky; however, one of the benefits is that its value is not affected by market changes. On the other hand, bank fixed deposits are secured investments with a low-risk level.

Penalty for premature withdrawals

People are more likely to withdraw funds from fixed deposit accounts during an emergency or when they need funds. The problem with premature withdrawal is that banks and corporates punish their clients for withdrawing earlier than the tenure has been completed. What should be the better option if both financial institutions penalize premature withdrawals? Bank fixed deposits would be the best option. It is primarily because the bank charges a penalty of around 1% on early withdrawals. Compared to corporates, the situation is different. To begin with, not all corporations offer premature withdrawals before the period of three to six months from the date of investment. 

Taxation

Is it true that fixed deposits are subject to taxes? However, before investing in fixed deposits, it is essential to know some associated tax benefits. Many banks offer a lock-in period for their fixed deposit products. Therefore, these banks can save tax on fixed deposits. Tax benefits may exist under Section 80C of the Income Tax Act if the lock-in period is longer than five to ten years.

Summary

These are the main differences between banks' fixed deposits and the fixed deposits of corporations. FDs from banks have good tax benefits, but corporate FDs offer a better rate of interest and a cumulative-interest structure, making them an excellent choice. If you do not have a stable income and your expenses are more than your income, don't go for the corporate FDs because the penalty for premature withdrawal is higher.

 When it comes to term, the bank fixed deposits are the best because they are available for a longer period, and when the tenure is long, one can earn interest for a long time. It is not the case with corporate fixed deposits, which are only available for up to 5 years and are no longer in most cases. Both Fixed Deposits are the best investments, but choosing the right Fixed Deposit depends on the investor's goal and needs.