Company Fixed Deposits: Better Than Bank FDs? 5 Things To Keep In Mind

The company fixed deposits are investment instruments provided by non-banking financial companies, housing finance companies, and other financial institutions. They are similar to bank fixed deposits in many ways but usually offer higher interest rates. An investor might get confused while choosing between bank and company FDs. Let’s look at the key differences between the two to help you decide which of the two meets your investment needs.

What are the key differences between Company Fixed Deposits (CFDs) and FDs?

• Interest rates

Company FDs interest rates are higher than bank FDs. NFBCs like Bajaj Finance provide interest rates as high as 8.60%, which goes up by another 0.35% for senior citizens. Moreover, you can start investing with an amount as low as Rs. 25,000. Bank FDs provide interest rate in the range of 5%-7.5% only.

• Risks

Bank FDs are one of the safest investment instruments available in the market today. Company FDs are also safe, especially when they are rated high for safety and credibility. Agencies like CARE, ICRA, FITCH, CRISIL, etc. are some of the most reputed organizations when it comes to credit ratings of NBFC fixed deposits.  

• Taxation

Bank FDs offer better tax benefits as compared to the company fixed deposits. If you come under the tax bracket of 30%, then the interest earnings on company FDs will be taxable and you will also have to pay the applicable cess.

However, some NBFCs like Bajaj Finance offer tax-saving fixed deposits that enable you to claim tax deductions up to Rs. 1,50,000. The tax-saving FD comes with a lock-in period of five years and you can claim TDS by filing Form 15G or 15H form. Therefore, if saving tax is your priority, then you can apply for such fixed deposits.

5 things to keep in mind before investing in company fixed deposits:

• Analyze and understand the company FD you are investing in

Not all company fixed deposits offer high-interest rates. Usually, plans that offer higher interest rates come with a significant amount of risks as well. Also, company FDs which are very safe often tend to provide lower returns. However, there are certain exceptions like Bajaj Finance FD. It is rated high for safety and stability by ICRA’s MAAA (stable) and CRISIL’s FAAA (stable) which means that your investments are safe from market risks. Moreover, the interest rates are also remarkably high which means that you can earn substantially without exposing your investments to many risks.

• Only go for the Company FDs which are credit rated

If you are looking for a safe investment option, then you must always go for company FDs that are credit rated by reputed third-party organizations. Higher credit rating means the company has the ability to pay your principal amount and interest timely.

• Liquidity

When you are opting for company FDs you must understand that company FDs are prone to default risks. Therefore, you may not be able to withdraw the interest earnings and principal amount when the business environment is not good. However, you do not suffer from default risks with reputed NFBCs like Bajaj Finance who have a good track record of paying timely interest payouts.  Also, choose a CFD which allows for premature withdrawal of your FD in case of financial emergencies. You should also be able to avail loan by using your FD as collateral to suffice your immediate financial needs.

• Interest earnings are taxable

When you are applying for a CFD you must know that the interest earnings are taxable post-maturity. At such times, the estimated benefits on account of extra interest rate can be nullified.

Using the Online FD Interest Rate Calculator, you can estimate your earnings in advance and plan your tax saving investments accordingly.

• Read the clauses and conditions carefully

Usually, you will have to fill and submit an application form while applying for a CFD. Always make it a point to read the conditions and clauses which are mentioned in the fine print of the application. These clauses usually contain information regarding liquidity, the board of directors, and other important details.

Also, do not forget to mention a nominee in the application form. This will ensure that a nominee will be able to claim for the savings without any difficulty.

These are a few key things that you must remember before investing in a CFD. Bank FDs are safe, but if you wish to gain higher returns, invest in a CFD.