What is the difference between Bank FD and Corporate FD? In which investment will be given more returns?
There are investors who want stability and reliable returns, so fixed deposits ie FDs have been a long -time favorite option for them. FDs give sure returns and make them realize financial security. FD (fixed deposits) are not limited to traditional bank fixed deposits alone. Corporate FDs have also become popular as an alternative investment option in recent years. Many investors face dilemma when choosing between corporate FDs and bank FDs. Although both are aim to increase your savings, but before taking decisions you should know some important differences between these two FDs.
What does bank FD mean
Bank FD (Fixed Deposit) is a financial instrument provided by banks, where you deposit a lump sum for a fixed period at a predetermined interest rate. It is considered a low risk investment as it guarantees returns and the original amount is safe. Banks offer different interest rates based on FD period and are usually insured by deposit insurance and loan guarantee corporation (DICGC) up to ₹ 5 lakhs.
What does corporate FD mean
Corporate FD is a fixed deposit provided by companies or corporations. Like the bank FD, you deposit an amount for a certain period and the company offers you interest on the principal. However, corporate FDs provide higher interest rates than bank FDs usually due to increased risk. This FD does not guarantee returns by government agencies, due to which it is slightly risky. Therefore, before investing you should carefully assess the financial situation of the company. Corporate FD is perfect for those who are ready to take more risk in exchange for more returns.
How much difference between bank FD and corporate FD
The interest rate in bank FD is usually low. Talking about the security of the deposit amount, it is generally considered safe due to RBI rules and DICGC insurance up to Rs 5 lakh. In this, you can also get tax exemption on FDs with a lock-in period of 5-10 years. According to Tata Capital Moneyfi, bank FD is fined 1-2% interest on premature withdrawal. The investment period in bank FD ranges from 7 days to 10 years.
Whereas, the interest rate in corporate FD may be higher. Also, it can get a potentially better return. Talking about the safety of deposited money, the risk in corporate FD is high due to dependence on the financial assistance of the issuing organization. You do not get any tax exemption on investment in corporate FD. Also, if you withdraw the money deposited in corporate FD ahead of time, then 2-3% interest is charged. Corporate FD can be invested from 6 months to 5 years.
conclusion
That is, by investing in bank FD, you get guaranteed returns and your money is also safe. Yes, the interest rate may be slightly low. But corporate FD can get higher interest rate, but there is also a risk on deposit money.
(Disclaimer: This is not an investment advice but only one information. Seek advice from your financial advisors before taking any decision related to rupee-money.)
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