Corporate FDs are term deposits held at a fixed interest rate over a specified period. Financial and non-banking financial companies offer company fixed deposits as a means of saving money. Fixed deposits offered by companies can vary in maturity from a few months to a few years, depending on the type of company. There are several advantages of corporate fixed deposits compared to bank fixed deposits, including the option of choosing a tenor and a guarantee of return.
Differences between Corporate and Normal FD
Tenor Period
There is no doubt that fixed deposits are long-term investments, and senior investors invest in this type of investment to enjoy a peaceful retirement. In such situations, the tenor period plays an essential role in calculating how long it will take for the investor to receive the returns before maturity. Corporate FD has a tenure of at least six months to five years.
In contrast, bank fixed deposits have a period of months to years and enjoy a much longer term than a corporate fixed deposit. It is best to invest in bank fixed deposits rather than corporate ones if one wishes to invest for a more extended period in fixed deposits.
Risk Investment
It is of utmost importance to analyze the risks before investing and to determine the amount of risk that can be tolerated. In the long run, fixed deposits can be considered safe investments, but in the short term, they also involve risks. In the case of Corporate FD.
The deposits are unsecured, and there is always a possibility that the company will collapse. It means that Corporate FD is risky, but one of the advantages of these is that they are not affected by market changes.
Penalty for premature withdrawals
The most common decision people make when they need to withdraw money from their fixed deposits is when there is an emergency or need for funds. There is a problem with premature withdrawal because banks and companies penalize when a person withdraws before the tenor has been completed. The reason is that the bank charges around 1-2% on the interest if the account is prematurely withdrawn.
Rate of Interest
An investor’s investment decisions are heavily influenced by the return they expect to make from the investment; this factor also exists in fixed deposits by the rate of interest, which is one of the most important factors to consider. There is a significant difference between the interest rates offered by banks and those offered by Corporate FD.
A Corporate FD, instead of a bank fixed deposit, can be expected to provide a higher and guaranteed interest rate throughout the tenor. Investing in a Corporate FD is also a great way to protect your investment capital. These conditions usually include both cumulative and non-cumulative interest-based payouts. The dividend is compounded when interest is reinvested, which results in a higher payout.
Final Thoughts
There are several significant differences between a fixed deposit from a bank and a Corporate FD. Normal FD has better tax benefits than the NPS scheme, whereas corporate fixed deposits are the best option for those who want a higher interest rate. It is recommended that you do not go for a Corporate FD if you do not have a stable cash flow and meet your expenditures, as they have a higher penalty for premature withdrawals.
It is true that when it comes to long-term fixed deposits, bank fixed deposits are a good choice as they provide a longer term, which means that one can expect interest for an extended period. In contrast, Corporate FD is only produced for a maximum of 3 years, not more. It can be concluded that both fixed deposits are the best investments. However, investing in fixed deposits depends on the investor’s goals and what fixed deposit is best for them.
