Bank fixed deposits (FDs) and company FDs are popular savings instruments. The bank FDs usually offer lower returns compared to company FDs. But is that the only factor to be considered while choosing to invest in one of these? Mint finds out how to choose between the two.
Safety
If a company fails to meet its commitments, your investment with it can be endangered. Compared with company FDs, bank FDs are safer as they come with an insurance cover of up to Rs1 lakh, from the Deposit Insurance and Credit Guarantee Corp. Ltd. Public sector banks come with an additional comfort of being owned by the government.
Bank FD: good
Company FD: bad
Returns
Both forms of deposits accept long-term investments and offer a fixed interest rate. Your returns from bank FDs are usually 50-100 bps lower compared to AAA-rated companies' FDs. Company FDs with lower credit rating can even offer 2-3% more than bank FDs. Company FDs come with credit rating, which indicates the company's health.
Bank FD: bad
Company FD: good
Taxation
Interest from both these instruments is taxable. If it is below Rs10,000 a financial year in bank FDs, it has to be declared in the income tax return as 'income from other sources'. If it exceeds Rs10,000 in bank FDs and Rs5,000 in company FDs in a financial year, tax is deducted at source. There are tax saving bank FDs that have a lock-in period of 5 years.
Bank FD: good
Company FD: bad
Withdrawal
While both allow premature withdrawal, bank FDs are easier to withdraw. You will have to pay a penalty of 1% if you withdraw bank FDs prematurely. In case of company FDs, the penalty is higher-2-3%. Withdrawals of company FDs also have more stringent conditions to be met and in some cases, you may get the principal amount without any interest.
Bank FD: good
Company FD: bad.
In arrangement with HT Syndication | MINT
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