Fixed deposits have been the most sought-after saving option for many generations to this day. They are the simplest financial instruments to understand. That makes them a favorite of most Indian households. Almost everyone knows how they work. You deposit some money with a bank and earn interest on it. That’s it.
Corporate or company fixed deposits are getting popular. They fetch a better rate than that offered by the banks on fixed deposits.
In this comprehensive article, we answer all your questions regarding corporate fixed deposits including their definition, benefits, who can invest in them, and more.
1. What are Corporate/Company FDs?
Corporate deposits or company fixed deposits are term deposits wherein you put your money for a fixed tenure at a fixed rate of interest. They are offered by non-banking financial companies (NBFCs) and other financial institutions. Compared to a regular bank fixed deposit, they fetch a higher rate of interest. The maturities of company FDs range from a few months to a few years.
2. Company/Corporate FD: Who Should Invest
If you have a short-term financial goal such as saving for an international trip or buying a gift for your spouse, corporate fixed deposits can be a good investment option.
However, corporate FDs are not covered by the DICGC (deposit insurance of up to ₹5 lakh which is only available for Bank FDs). To overcome this concern, ensure you check the basic fundamentals of the company are strong and the company enjoys a good credit rating. If the credit rating by credible agencies is below average you must reconsider putting your money in that particular company and look for other reliable companies. It is ideal to invest in a high-rated corporate deposit with AAA or equivalent rating. It signifies the highest safety regarding the payment of interest and the principal. As you go lower in the rating chart, the degree of safety reduces.
3. Corporate/Company Fixed Deposit: Why You Should Invest
Corporate fixed deposits fare better than Bank FDs as they offer a significantly higher interest rate. The interest rate difference between regular Bank FDs and corporate fixed deposits is generally in the range of 1% to 3%. This seemingly small difference can have a sizable impact on your corpus in the long run. You can see this difference by using a FD return calculator using different FD interest rates. Moreover, company fixed deposits mostly have lower lock-ins and are bit more flexible in how the interest gets paid.
Similar to Bank FDs, a corporate fixed deposit can also be used to avail loan facility when you require the funds in case of an emergency. The sanctioned amount can vary from one financial institution to the other. Usually, it can go as high as 75% of the fixed deposit amount.