Fixed Deposits (FDs) are among India's most popular savings instruments. FDs are a type of investment in which you deposit a certain amount of money with a financial institution for a predetermined period and earn a fixed interest rate. FDs can be used for various goals and are considered relatively safe because they are not subject to market fluctuations.
There are different types of FDs, such as corporate and bank FDs. Before investing your money in an FD, you must know the difference between the two.
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Non-Banking Financial Companies (NBFCs), corporations, and other private entities besides banks offer corporate FDs. Corporate FDs offer the same benefits as any other FD, such as fixed rate of interest, stability, and low risk. However, they might offer higher interest rates compared to bank FDs. They also come with a higher degree of risk, as the safety of your investment depends on the institution's financial health. If the company has a strong foothold, the FD will be safer. However, if the issuing company is not as stable, the risk associated with the FD will increase.
As the name suggests, these are offered by banks. Bank FDs are considered one of the safest investment options as well-established banks back them, and deposits up to Rs. 5 lakhs are insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC) scheme. Bank FDs may offer more security than corporate FDs but generally offer slightly lower interest rates.
Here are some major points of difference between the two options:
|Points of difference||Bank FDs||Corporate FDs|
|Returns||Generally lower interest rates compared to corporate FDs.||May offer higher interest rates compared to bank FDs.|
|Tenure||Offer a range of tenure options, typically from a few months to several years.||Similar range of tenure options as bank FDs.|
|Insurance||Covered by government deposit insurance schemes like DICGC and offer higher safety.||Not covered by deposit insurance and contain higher risk due to issuer's financial stability.|
|Applicability for Risk Profiles||You can invest in bank FDs if you have a conservative attitude towards investing and are seeking lower risk and stable returns.||You can invest in corporate FDs if you want to take on slightly higher risk for potentially higher returns.|
Here are some key factors to consider:
How to select a bank FD?
Here are the key steps to help you choose the right bank FD:
To sum it up
FDs stand out as a reliable and popular investment avenue in India, offering stability, fixed returns, and minimal exposure to market fluctuations. While corporate FDs might offer potentially higher returns, they come with increased risk. On the other hand, bank FDs offer relatively lower interest rates and provide a greater sense of security. Whether you opt for corporate FDs from private entities or bank FDs backed by well-established institutions, make sure to consider factors like tenure, risk appetite, and interest rates when deciding between these two investment options.
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