CORPORATE DEPOSIT Vs BANK DEPOSIT
Corporate Fixed deposit
Corporate fixed deposits are normal fixed deposits offered by Companies. The interest rates offered are generally higher than Bank interest rates and can be in range from 8%-16% p.a . Higher the interest rates offered higher are the risks involved. Why do companies have these deposits? When companies have cash crunch and require money, they can offer deposits at attractive rate of interest to common public, one of the reasons for this can be that they do not want to raise the additional capital by issuing shares. Corporate Deposits are governed as per Section 58A of Companies Act, 1956.
Features of Corporate Fixed Deposit:
- 1. Corporate fixed deposits offer better interest rates than banks
Corporate fixed deposits will give you a higher return than comparative bank fixed deposits. This is because of the additional risk is involved in Corporate Fixed Deposit.
- 2. Additional risk
Company fixed deposits have higher risk than bank fixed deposits because these type of deposits are unsecured, if the company goes in liquidation you will lose your money, and unlike banks, they don’t have any backing of the RBI.
- 3. Company fixed deposits are rated by Rating Agencies
The rating agencies hand out ratings to the particular offering, and that can help you make a decision. These ratings can help raise flags if any offering is rated low, and you can possibly avoid such fixed deposits.
- 4. Company fixed deposits may be unsecured
Company fixed deposits may be unsecured debt, which means there is no underlying collateral, and in case of default, you won’t get the funds back by selling off your documents.
- 5. TDS on Company Fixed Deposits
If the interest you get from the deposit is less than Rs. 5,000 in a year, then there won’t be any TDS on it and above the limit TDS will be deducted.
Bank Fixed Deposit
Fixed deposits are a high-interest-yielding term deposit offered by banks in India. FDs offer higher rates of interest than saving accounts. The account which is opened for a particular fixed period by depositing particular amount known as fixed deposit account.
FD is accrues around 8% of annual returns for non-senior citizen & for senior citizen the rate is around 9%, the rates depending on the bank’s tenure and guidelines, which makes it’s widely sought after and safe investment alternative. The tenure of an FD can vary from 10, 15 or 45 days to 1.5 years and can be maximum up to 10 years.
Features of Bank Fixed Deposit
- 1. Tenure ranges between six months to 10 years.
- 2. Bank Fixed Deposit offer Guaranteed Returns.
- 3. Interest income monthly, quarterly or annually.
- 4. Partial or full withdrawal facility is available with penalty interest rates.
- 5. Person can also get loan against Fixed deposits.
- 6. Senior citizens get higher coupon rates in the range of 0.25 -100 %.
We should know the difference between Corporate Fixed Deposit and Bank Fixed Deposit so that we can take the right decision as far as investment in FDs are concerned. The prime difference between the two is that though corporate FDs offer 2-3 per cent higher interest rate per annum, they are not as safe as bank FDs. Bank deposits are generally safe investments because FDs up to Rs 1 lakh are insured under the Deposit Insurance & Credit Guarantee Scheme of India.
Hence, it is important for us to ascertain the stability of the company, its track record of giving returns.
The following points to be keep in mind before investing in corporate FDs:
- What is the rating given to the company’s fixed deposit scheme? These ratings given by credit rating agencies indicate the safety of the investments based on the number of criteria.
- Company is issuing the fixed deposit to raise the money for its operations. Find out the liquidity of the company and its financial strength to repay at the time of maturity; otherwise, investors have issues on getting back their principal amount.
- Also, it is important to know that where you need to contact them to close the FD.
- Read the complete terms and conditions of the FD and find out whether they allow the pre-close/pre-maturity of the fixed deposit before the maturity.