Both bank and company deposit holders consider their respective options as beneficial. However, this debate is never-ending, and you must analyze the features and benefits of both options to make an informed choice.
Understanding fixed deposits (FDs)
Fixed deposits(FDs) are fixed-income investment products that offer guaranteed returns on maturity. It is a risk-free way to earn returns that are higher than the interest rate offered on a savings account.
FDs are a one-time deposit unlike recurring deposits (RDs) that require an investment at regular intervals. They have a pre-specified maturity date and premature withdrawal before the due date entails a penalty.
Until a few years ago, banks were the only institutions that issued FDs. However, non-banking finance companies (NBFCs), as well as companies, now offer FDs; though company deposits differ from bank deposits.
Features of bank FDs
- Offered by private and public sector banks
- Maybe cumulative or non-cumulative deposits
- Offer lower fixed deposit interest rates
- Are insured by the Reserve Bank of India (RBI)
- Have lower liquidity, as some banks have stringent laws towards premature withdrawals
Features of company deposits
- Offer a higher rate of interest as compared to bank FDs
- Provide some level of security, as credit agencies rate allcorporate deposits
- Give the flexibility to choose tenure and maturity terms
- Are more liquid as the norms for premature withdrawal are not very stringent
Benefits to deposit holders
- FD rates are higher than bank account interest rates providing greater returns at minimum risks
- You may choose regular payout of the interest if you are looking for periodic income;alternatively, opt for a cumulative payout on maturity if you are looking for higher returns
- Senior citizens enjoy a higher rate of interest, providing them with better and regular returnsduring their retirement years
- Most deposit issuers require a small deposit limit and have no limitations on the maximum amount to be invested
- FDs offer higher investment stability
Factors to consider before making an investment decision
- Do your research
Several options from NBFCs like Mahindra Finance are available and you must compare the different products to make the right decision.
- Determine your requirements
Before making any investment, you need to identify your goals and list your needs. This will allow you to evaluate different options that suit your requirements.
- Prioritize your needs
From the above needs, make a list of the most important ones.
- Review available options
After determining your requirements and prioritizing them, analyze all choices. Compare various terms and conditions, such as interest rate, tenure, premature withdrawal penalty, and interest payout frequency, among other aspects.
- Make your decision
After having gone through the aforementioned steps, the final step is to invest in your chosen FD; however, ensure you check the fixed deposit eligibility to norms to avoid any surprises at the time of investing.
Comparison of bank and company fixed deposits
|Bank FD||Company FD|
|Credit rating||Not required||Mandatory|
|Insurance||Insured by the RBI up to a particular amount||Not applicable|
Bank and company deposits are both good investment options and have similar features. You can make a final choice, depending on your requirements. If you are looking for risk-free guaranteed returns, you can opt for bank deposits. Alternatively, if you are willing to assume some level of risk to earn higher returns, corporate Fixed deposit is more suitable.