FD Benefits & Features: Bank vs Company Fixed Deposits

Save & Invest

Do you want to invest in fixed deposits? Here, you will learn all about fixed deposits and FD benefits. You will further learn the difference between an FD in a company and FD in a bank.

What are Fixed Deposits?

Afixed deposit or an FD is a safe investment that helps you earn interest income. FDspromise guaranteed returns and involve minimal risk. All interest earnings from FDsare taxable. Let us learn more about FDs.

Features of a Fixed Deposit

●      The quantum can be deposited only once.

●      Any fresh deposits have to be made in separate accounts.

●      The interest rate is set in advance.

●      The duration ranges anywhere between 7 days and 10 years.

●      FDs can be renewed without any hassle.

●      Withdrawals can’t be made before maturity. Else, a penalty has to be paid by the client.

FD Benefits

  • Guaranteed Returns: One of the main advantages of an FD is the assured returns. This means zero pitfalls as compared to other forms of investments. On maturity, a fixed interest will be paid on the investment quantum.
  • Easy to Open: You can open an FD account within minutes. Moreover, you can apply for it online or go to the nearest bank branch.
  • Advanced Interest Rate: FDs enable guests to earn an advanced interest income as compared to their savings.
  • Flexible Term: You can choose to open an FD account for a period of 7 days to 10 years.
  • Multiple FD Accounts: You can hold more than one FD account at a time. When you want to make a fresh investment, you can always open a new FD account.
  • Tax Benefit: You can claim for duty impunity under Section 80C of the Income Tax Act of India for bank FDs.

What are Company Fixed Deposits?

Over time, an investment tool that has been a part of many investor’s portfolios is FDs. Whether you’re a risk averse investor or not, FDs are likely to have a seat in your portfolio.

Another type of fixed depositthat has become popular over the time iscompany/commercial fixed deposit. Let’s explore more about company FDs.

What are Commercial Fixed Deposits?

Commercial/ Company fixed deposits are FDs issued by NBFCs, HFCs, and other financial institutions. Rather than banks, financial institutions isue commercial or company fixed deposits.

Very often, their interest rates are generally greater than bank FDs. They stay fixed throughout the duration. To invest in commercial FDs you should look at the offered rate of interest and credit standing of the financial institution. The more the credit standing, the lower the threat of dereliction.

Features of a Commercial Fixed Deposit

  1. Interest Rate

Compared to bank rates, commercial FDs have advanced interest rates. Investing in company FD can therefore offer higher returns. Commercial FDs also tend to generally give around 0.25—0.5 higher interest rates for elderly citizens.

  1. Credit Conditions

An important factor that investors should keep in mind when it comes to choosing commercial fixed deposits, is the credit standing of the issuer. The greater the standing, the lower the risk of default. Credit agencies assign these standing on the basis of the financial health of the issuer, including the comprehensive analysis of the company background, prepayment history, operation quality, etc.

  1. Taxation on Returns

Both bank FD and commercial FD interestare taxed the same way. The interest is added to the depositor’s income and computed based on the income tax bracket. The TDS charged by the bank or commercial FD issuer is different for these two types of investments. For bank FDs, banks don’t deduct TDS when they add interest to your account if it is more than Rs. 1,000 for people who aren’t seniors.

  1. Lack of Insurance Coverage

A major disadvantage of commercial FDs is the absence of insurance coverage. Unlike FDs opened in listed marketable banks, commercial/ company FDs aren’t covered under any guarantee scheme.This puts the investor’s money at more risk if the issuer defaults.

  1. Cinch-in Period and Unseasonable Pullout Penalty

Unlike bank FDs, most companies’ FDs have a lock-in time. During this period, the investor might be unable to get their money back. Most of the time, it takes three months. After the cinch-in period is over, an untimely withdrawal within 3–6 months may result in no interest or a lower rate of interest. However, an untimely withdrawal after 6 months may result in a penalty with a lower rate of interest on the deposit.

Further, commercial FDs usually let you take out a loan against your FD for up to 75% of the deposit amount. It is usually at a rate of 2% above the FD rate. Bank FDs, on the other hand, usually let you take out a loan for up to 85%–95% of the deposit amount, usually at a rate that is 0.75%–2.5% more than the FD interest rate.

Summing Up

FDs are one of the best investment options in India. One of its key benefits is assured returns. With a flexible tenure, you can always set your deposit according to your requirements. Visit Piramal Finance to read more in-depth, finance-related blogs.