What is Corporate Fixed Deposit? How Is It Different from Bank Fixed Deposit?

Today, we will discuss almost everything that you have to know about a corporate fixed deposit.

What is Corporate Fixed Deposit?

Before knowing anything else, let us first understand what a corporate fixed deposit is.

Same as banks, many corporates, and non-financial banking companies as well allow to collect fixed deposits for a specific tenure at a pre-defined rate of interest. These deposits are known as corporate fixed deposits. Same as bank fixed deposits, the corporate fixed deposits as well provide flexibility to choose tenure and guaranteed returns. In addition to this, these FDs offer a higher rate of interest than regular bank FDs.

Comparison Between

Fixed Deposits, Guaranteed Return Plans & Debt Mutual Fund

Guaranteed Return Plans, Fixed Deposits &
Debt Mutual Fund

Guaranteed Return Plans

Returns Before Tax

7.5% ^(TAX-FREE)

Returns After Tax

7.5%

Guaranteed Returns

Yes

Life Cover

Yes

Tax on Profit

Tax Free*

Risk

No Risk

Still Better than FD’s and Debt Mutual Fund

Fixed Deposits

Returns Before Tax

7% ^(TAXABLE)

Returns After Tax

4.8%

Guaranteed Returns

Yes

Life Cover

No

Tax on Profit

Taxable

Risk

Low Risk

Debt Mutual Fund

Returns Before Tax

8% ^(TAXABLE)

Returns After Tax

5.5%

Guaranteed Returns

No

Life Cover

No

Tax on Profit

Taxable

Risk

High Risk

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*For annual premium upto ₹5 Lacs

How Are Corporate FDs Different Than Bank Fixed Deposits?

Here are the two points that make corporate FDs different than Bank’s Fixed Deposits:

1. The Rate of Interest for Corporate Fixed Deposits is higher than Bank's Fixed Deposits:

   The rate of interest offered by corporate fixed deposits is higher than bank FD interest rates. For example, RBL Bank FD rates for tenure of one year to less than two years is 6.5%, whereas the rate of interest offered by Bajaj Finserv Fixed Deposit scheme for the same tenure is 6.9%. Let us look at the below table to understand the difference in the rate of interest between RBL Bank and Bajaj Finserv Fixed Deposits:

   RBL Bank and Bajaj Finserv FD Interest Rate Difference
   Tenure	RBL Bank Interest Rate	Bajaj Finserv Interest Rate
   One Year to Less than Two Years	6.50%	6.9%
   Two Years to Less than Three Years	6.50%	7%
   Three Years to Five Years	6.40%	7.2%

2. The Penalty Period In Case of Early Withdrawal Is Comparatively Lower With Corporate FDs:

   According to the guidelines of the Reserve Bank of India, all the fixed deposits should have a penalty period of at least three months. According to which, if you withdraw your invested money from a fixed deposit within the initial three months, you will have to bear a penalty. Beyond this period, it is up to your NBFC, Company, or Bank to decide its penalty period. Generally, the penalty period of corporates is lesser than that of banks. For instance, in the case of State Bank of India's fixed deposit scheme, you have to pay the penalty if you withdraw your FD anytime before it matures. Whereas, for most of the corporate FDs, the penalty period in case of early withdrawal is only three months.

   Now as we know the difference between corporate FDs and bank FDs, let us know the similarities between these two:

Similarities Between Corporate FD and Bank FD:

There are some similarities as well between these two types of fixed deposits:

• Higher Rate of Interest for Senior Citizens: Same as most of the bank fixed deposit schemes, the corporate fixed deposits offer a little higher rate of interest for senior citizens. For example, if the rate of interest for a normal Indian resident is 6%, then for senior citizens it would be a little higher than this.

• Guaranteed Returns: Again, same as bank FDs, corporate fixed deposits as well offer guaranteed returns. For example, if you have invested Rs. 1 lakh in a corporate fixed deposit and the concerned corporate or non-banking financial institution has promised to provide you 7% rate of interest, then it does not matter how the rate of interest fluctuates or market moves, you will get the promised rate of interest at the end of the year. Moreover, you will get to know about the amount that you will get as maturity at the time of investment only. This helps you to plan your future financial goals precisely.

• Flexibility to Choose Investment Tenure: The tenure of corporate fixed deposits ranges from one year to five years and as an investor you have the flexibility to select any duration within this range. Therefore, if you want to invest for one year only, you can select investment for one year and if it is 3.5 years, you can select the tenure accordingly. However, the rate of interest varies accordingly, which is, the higher the tenure, the more is the rate of interest for your corporate FD.

As you get to know about corporate FDs, their similarities and differences with bank FDs, let us now see which companies should you select to open your fixed deposits or which companies are eligible to collect fixed deposits.

Which Non-Banking Financial Institutions or Companies Can Collect Fixed Deposits?

Reserve Bank of India is very cautious while allowing Non-Banking Financial Institutions to collect fixed deposits from the general public. An NBFC does not only have to be registered with RBI instead it has to have a legitimate license for accepting the deposits. After this, the company must manage financial assets of at least Rs. 5,000 crores. With all this, these non-banking financial institutions as well have to follow some of the guidelines to accept fixed deposits from the general public. These guidelines are:

The Guidelines of RBI that NBFCs Should Follow for Launching Fixed Deposits:

• The minimum tenure of a fixed deposit has to be of one year, whereas the maximum tenure should be five years.

• The rate of interest for the fixed deposits should not be more than the interest rate prescribed by the Reserve Bank of India. This interest rate is revised by RBI from time to time.

• The total number of fixed deposits that an NBFC can collect is up to its permissible limit, however, this again varies with NBFCs.

• An NBFC has to disclose all the relevant information related to fixed deposits to RBI.

• NBFCs are not allowed to offer any extra gifts or benefits to their depositors.

The Bottom Line!

Therefore, if you want to achieve a goal within one to five years, then you can select a corporate fixed deposit scheme. However, do not forget to check the credit rating of the company in which you are going to invest your hard-earned money.

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