Corporate FDs vs Bank FDs: Everything You Need to Know
- What Is a Bank FD?
- What Is a Corporate FD?
- Why Do Corporate FDs Pay More?
- Which One Is Actually Safer?
- How is Interest taxed?
- How Can You Access Corporate FDs?
- Bank FD vs Corporate FD at a Glance
- Which Option Should You Consider?
- Conclusion
- FREQUENTLY ASKED QUESTIONS
A Corporate FD and a Bank FD are both types of Fixed Deposit (FD), offering fixed interest over a specified investment tenure. However, they differ in areas such as the issuing institution, deposit insurance, interest rates, and credit risk. Understanding these differences can help investors compare the features of both products before making an investment decision. This blog helps you understand what makes these two investing options unique.
💡 Quick Answer
Both a Corporate FD and a Bank FD pay fixed interest for a chosen tenure, so the real trade-off is safety versus returns. Bank FDs carry DICGC deposit insurance up to the applicable limit; Corporate FDs do not and depend on the issuer’s credit rating, often paying more. Which is better depends on your risk appetite and goals.
What Is a Bank FD?
A bank FD is a fixed deposit you place with a bank for a set term. Banks insure these deposits through the Deposit Insurance and Credit Guarantee Corporation (DICGC), up to ₹5 lakh per depositor. This insurance applies per bank, so you stay protected even if that bank fails. Bank FDs typically offer lower interest rates than corporate options, though.
What Is a Corporate FD?
A Corporate Fixed Deposit (Corporate FD) is a fixed deposit offered by a company or a Non-Banking Financial Company (NBFC). By investing in a Corporate FD, you deposit your funds with the issuing company for a specified tenure at a predetermined interest rate. The interest rate offered may vary depending on factors such as the issuer, tenure, prevailing market conditions, and the issuer’s credit rating. Before investing, investors should review the issuer’s credit rating, investment terms, and other relevant information to assess whether the product aligns with their financial objectives and risk appetite.
Why Do Corporate FDs Pay More?
Interest rates on Corporate FDs may differ from those offered on Bank FDs, depending on the issuer, tenure, prevailing market conditions, and other factors. Unlike eligible Bank FDs, Corporate FDs are not covered under the DICGC insurance scheme. Before investing, investors should review the issuer’s credit rating, financial strength, investment terms, and other relevant information to make an informed investment decision.
Which One Is Actually Safer?
Bank FDs and Corporate FDs differ in how they are backed and the factors investors should evaluate. Eligible bank deposits are covered under the DICGC insurance scheme up to the applicable limit, while Corporate FDs are not covered by such insurance. Instead, the creditworthiness of a Corporate FD depends on the issuing company and its credit rating assigned by agencies such as CRISIL, ICRA, CARE Ratings, or India Ratings. Before investing in a Corporate FD, investors should review the issuer’s credit rating, financial strength, tenure, and interest rate to determine whether it aligns with their investment objectives and risk appetite.
How is Interest taxed?
Interest earned from both Bank FDs and Corporate FDs is generally taxable according to the investor’s applicable income tax slab. However, the threshold for Tax Deducted at Source (TDS) may differ. Banks deduct TDS once the applicable interest threshold prescribed under the Income-tax Act is exceeded. For Corporate FDs, TDS may apply at a lower threshold, subject to the prevailing tax provisions. Since TDS rules and thresholds can change, investors should refer to the latest Income-tax provisions or consult a tax advisor before investing. For a broader view of how fixed-income returns are taxed, see our guide on taxation on bonds in India.
How Can You Access Corporate FDs?
Corporate FDs are now available through digital investment platforms, making the application process more convenient than traditional offline methods. The Navia All in One App provides access to Corporate FDs through its Tools section via its integration with Finspring. Investors can view available Corporate FD options, compare issuers, tenures, interest rates, and credit ratings, and complete the application process digitally, including the applicable Know Your Customer (KYC) and Aadhaar verification requirements. Since Corporate FDs are issued by different companies, investors should review the issuer’s credit rating, investment terms, and other relevant information before making an investment decision.
Bank FD vs Corporate FD at a Glance
| Feature | Bank FD | Corporate FD |
|---|---|---|
| Issued By | Banks | Companies or NBFCs |
| Deposit Insurance | Eligible deposits covered by DICGC up to the applicable limit | No DICGC insurance |
| Interest Rate | Varies by bank and tenure | May be higher than Bank FDs, depending on the issuer and tenure |
| TDS Threshold* | Applicable threshold under the Income-tax Act | Applicable threshold under the Income-tax Act for Corporate FDs |
| Safety Considerations | Bank’s financial strength and applicable DICGC insurance | Issuer’s financial strength and credit rating |
Which Option Should You Consider?
Both Bank FDs and Corporate FDs have distinct features and considerations. While Bank FDs and Corporate FDs differ in areas such as deposit insurance, interest rates, and issuer risk, the appropriate choice depends on your individual financial objectives and risk appetite. Before investing, compare the available options carefully, review the issuer’s credit rating for Corporate FDs, and read the relevant product documents to make an informed decision. If you are weighing fixed-income options more broadly, it can also help to look at India’s bond market and how income funds work.
Conclusion
Bank FDs and Corporate FDs both offer fixed returns over a specified tenure, but they differ in areas such as deposit insurance, interest rates, and issuer risk. Before investing, compare the applicable terms, credit ratings (for Corporate FDs), and other product features to determine which option aligns with your financial goals and risk appetite.
Key Takeaways
- A Bank FD is issued by a bank; a Corporate FD is issued by a company or an NBFC.
- Eligible Bank FDs are covered by DICGC deposit insurance up to the applicable limit; Corporate FDs are not.
- Corporate FDs may offer higher interest, reflecting the issuer’s credit risk rather than insured safety.
- A Corporate FD’s safety depends on the issuer’s financial strength and its credit rating (CRISIL, ICRA, CARE, India Ratings).
- Interest from both is taxable at your slab; the TDS thresholds can differ and may change over time.
- Corporate FDs can be accessed digitally, for example via the Navia All in One App’s integration with Finspring.
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FREQUENTLY ASKED QUESTIONS
What is the main difference between a bank FD and a corporate FD?
A Bank FD is offered by a bank, while a Corporate FD is issued by a company or NBFC. Eligible Bank FDs are covered under the applicable DICGC insurance scheme, whereas Corporate FDs are not. The two products also differ in areas such as interest rates, tenure, and credit risk.
Do corporate FDs always pay higher interest than bank FDs?
Corporate FDs may offer higher interest rates than Bank FDs, depending on the issuer, tenure, and prevailing market conditions. Investors should compare the latest interest rates and product terms before investing.
Why does the TDS threshold differ between bank and corporate FDs?
The Income-tax Act prescribes different TDS thresholds for Bank FDs and Corporate FDs. The applicable thresholds are subject to the prevailing tax provisions and may change over time. Investors should refer to the latest tax rules for current thresholds.
Is a corporate FD safe to invest in?
The risk associated with a Corporate FD depends on factors such as the issuing company’s financial strength and its credit rating. Before investing, investors should review the issuer’s credit rating, investment terms, and other relevant information.
Can I access corporate FDs through a trading app?
Yes. Some investment platforms, including the Navia All in One App through its integration with Finspring, provide digital access to Corporate FDs, subject to the availability of issuers and applicable terms.
Which is better for a risk-averse investor?
Which option is suitable depends on an investor’s financial goals, investment horizon, and risk appetite. Investors should compare factors such as deposit insurance, interest rates, issuer risk, tenure, and product features before making an investment decision.
DISCLAIMER: Investment in securities market are subject to market risks, read all the related documents carefully before investing. The securities quoted are exemplary and are not recommendatory. Full disclaimer: https://bit.ly/naviadisclaimer.
