Bank FD vs Corporate FD
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Fixed deposits are a simple saving product that can help people to park their money in a safe and secure place and get a steady rate of returns.
Unlike other forms of investment that require periodic investment, fixed deposit is a one-time lumpsum investment. It gives a fixed rate of returns and comes with a maturity period. Premature redemption is available in a few fixed deposits. However, the interest rate given by these fixed deposits is a tad lower than fixed deposits without the flexibility to withdraw prematurely.
Fixed deposits are issued by various financial institutions like banks and corporates. The fixed deposits introduced by banks and corporates are different and vary from one another.
While everyone knows about bank fixed deposits, many people are not aware of corporate fixed deposits. Recently, corporate fixed deposit holders of DHFL are facing uncertain times due to financial problems. You may be asking yourself “Whether DHFL FD is safe”. In this current scenario, it has become important to know about FDs issued by corporates and what differentiates bank FD and Corporate FD.
Bank Fixed Deposits
All banks offer fixed deposits to their customers. While it may not be necessary to open a savings account to open a fixed deposit, having a savings account makes it convenient to fixed deposits holders.
With a savings account, customers can easily open an FD through online and offline process. Now, fixed deposits can be easily opened through your bank’s net banking or app. However, if you don’t have a savings account, you may have to submit documents such as PAN card or other identification proofs.
A minimum amount is needed to open a fixed deposit with a bank. The minimum amount will vary between banks and the area of operation.
Banks give a certain rate of interest to its customers based on the maturity period. Also, in bank FD customers have the flexibility to park their money for a period of seven days to 10 years.
There is almost no risk for bank FD holders. Deposits in commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks of up to Rs. 1 lakh are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC).
Corporate FDs are issued by companies. These corporate fixed deposits work similarly like bank term deposits.
Corporate FDs can be opened online or through an offline process. In the case of corporate FDs, customers have to submit an account opening form while opening a fixed deposit.
These company fixed deposits fetch a higher rate of returns than an FD in a top bank. However, the higher rate of interest comes with a higher risk than bank FDs. In the case of company default, the companies may not be able to give the maturity amount. The scenario is likely to take place when the company goes bust or is hit by a recession.
Unlike bank FDs, corporate FDs do not come with a range of investment tenure. Typically, these FDs mature between 1 year and 3 years.
Ratings of the FDs along with the interest rate drive the demand for corporate fixed deposits. A higher rating on an FD by major credit agencies signifies that the higher-rated fixed deposit is less risky than FDs with a lower credit rating.
| Parameters | Bank FDs | Corporate FDs |
| Interest Rate | Moderate interest rate | Higher rate of return |
| Issued by | Issued by banks | Issued by companies |
| Risk | Nil risk | High Risk |
| Insurance | Deposits up to Rs.1 lakh are insured | Deposits are not insured |
| Minimum Investment Amount | Low minimum investment amount | Higher Investment amount |
| Tenure | Flexibility in tenures from 7 days to 10 years | Limited tenure |
Corporate Fixed Deposits give higher interest rates than bank FDs. However, the higher return comes with higher risk. Corporate fixed deposits do not come with insurance. Hence, in the case of bankruptcy, the customers can lose the entire investment amount along with the interest.
Hence, bank FDs is the best and safer option than company FDs.
Tags: fixed deposits, corporate fixed deposits