Where to Fix Deposit: Bank or Company?


Bangalore: A good investment strategy is a perfect combination of a safe as well as risk-free investment. Some safe investments, with high returns, are Fixed Deposits (FD), National Saving Certificate (NSC), Public Provident Fund (PPF), Stock Markets and Mutual Funds along with investment in Gold and Real Estate.

Among all, FD is the most preferred investment option in India. But investors fail not only to examine various considerations like returns, tax impact, liquidity and safety for investment but also to select the organization, that is, whether to go for bank FD or company FD. Here are some tips which you should consider to become extra careful before selecting the best option of investment in FD.

The bank FD investment is considered to be safe as all banks operate under the guidelines of Reserve Bank of India (RBI), the banking regulator in India. Hence, the FDs offered by private companies are more risky as they don’t follow any government owned rules and if the company goes bankrupt, it will sink along with the invested money. Investment in FD has a minimum period of 15 days to 5 years and above and yields a profit according to the predetermined rate of interest.

The company offers a high rate of interest for FDs, which is 3-4 percent higher than the rates provided by the banks. Hence, one doesn’t take a second thought to select which offer to grab. But experts suggest that this shouldn’t be the only criterion to select a FD scheme. In bank FD the deposits are covered by a guarantee from the Deposit Insurance and Credit Guarantee Corporation of India. Hence, in case of default, the bank assures a refund of minimum 1 lakh, whereas there is no such guarantee for company deposits. In this context Mr. Anup Bhatia, Managing Director and CEO of Money Honey Financial Services said, “When investing in company deposits, do not get lured by high interest rates. Check the past track record and financial position of a company before committing your money.”

In company FDs, the investor has to pay tax on the received interest as well. Though this criterion is similar to that of bank FDs as well, the percentage of the tax to be deducted is much higher than that of the banks.  The scheme for FD is also rigid as the investor cannot break it. In banks, the case is bit different; one can break it in case of emergency with facing few penalties but in company FDs, you cannot access the fund whenever you wish. It is a norm not to break it before 6 months of the investment done but even if you break it after 6 months, according to the company norms, the rate of interest will be 2 percent lower than the promised rate. Also, it takes a few days to get the money back, which is not the case in bank FD.

The safety of FD rigidly depends on the fiscal grip of a company. The only drawback a FD is that it doesn’t offer protection against inflation. If inflation rises during the maturity of FD, then the return will be inflation adjusted, which will be a small amount considerably.