From building a corpus for a trip to post-retirement planning, bank fixed deposits (FDs) have been an all-purpose solution for them all. However, even these may fall short when it comes to long-term planning. For those worried about falling interest rates on bank FDs, another option in the form of corporate fixed deposit (CFD) is available. What is it, and how can it help; let’s find out.

Understanding a corporate fixed deposit

In simple terms, corporate fixed deposits are much like bank fixed deposits; however, the two do have differences. More than savings or investments, corporate fixed deposits are money-raising tools for companies. Here, it is the company that offers the investors with the maturity amount at the completion of the tenure. Investing in a corporate fixed deposit does provide higher interest rates – one of the prime reasons these are attractive investment options for the public. However, they also involve a high degree of risk.

Thankfully, these are short-term investment options – a corporate fixed deposit usually offers a tenure that ranges between one to three years.

How is a corporate FD different from a bank FD?

There are vital differences between a corporate fixed deposit and a bank fixed deposit. The table below will help you understand them.

Point of DistinctionCorporate Fixed DepositBank Fixed Deposit
   
Offered byCorporates looking to raise moneyBanks offering the public a means to save money for the future
Rate of InterestUsually higher than bank fixed depositsAverage
TenureUsually short-term – ranges between one to five yearsBroad spectrum – the tenure for a bank fixed deposit can range from seven days to 10 years
Risk InvolvedMedium – They offer fixed returns over the chosen tenure. Before investing, review the product’s credit rating, track record, and liquidity factors to evaluate the riskLow – Bank FDs are relatively lower risk since banks are more closely monitored by the RBI compared to other financial institutions offering FDs
Lock-in PeriodThe lock-in period is higher in CFDs compared to bank FDs. The same holds true for premature withdrawal charges.The lock-in period is lower compared to CFDs.

Additional Read: Top things to know about Corporate Bond investments

Are there any similarities?

Despite their key differences, corporate FDs do share some similarities with bank FDs, as discussed below.

#1 Fixed returns

People usually opt for bank fixed deposits because they are a safe investment option, offering guaranteed returns. However, considering corporate FDs to be high-risk is an unfounded fear, to a certain extent. This is because all corporates accepting deposits need to follow stringent guidelines laid down by the Reserve Bank of India (RBI). Since only a handful of companies in India collect deposits from the public, you can be assured of fixed returns.

#2 Flexibility of choosing the tenure

Under both corporate and bank fixed deposits, the investor is allowed to choose the tenure as per their investment goals. However, corporate fixed deposits are more suitable in the short run as they usually come with a tenure of one to five years.

#3 Higher interest rates for senior citizens

Both corporate and bank fixed deposits offer added benefits to those who have retired and are dependent on their FD returns. This is because senior citizens are eligible to receive a slightly higher interest rate.

Additional Read: Which Investment Option Is Best For The Risk Averse Investor?

Who should invest in CFDs?

Investors with short-to-medium-term investment goals but without the risk appetite for equity and mutual funds will find CFDs a good investment avenue. Especially those looking for a regular income such as senior citizens can benefit from corporate fixed deposits, which offer higher returns than bank FDs. Do make sure you check a company’s credit health before making an investment.

In search of the right investment options? Now do so from the comfort of your home! Using Tata Capital’s Moneyfy app, you can compare between different Corporate Fixed Deposit options and choose the one that best suits your risk appetite and investment goals.

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