Tuesday, September 5, 2017

Company Fixed Deposits V/S Bank Fixed Deposits

Fixed Deposit, a banking term that can easily scare those who are unaware of the lingo used by top class bankers and investors. Let’s break down this two-word idea into a much simpler format.

● Fixed – Something that stays still, preferably stable and safe from harm.

● Deposit – An investment; something which gives some returns.

Now when we link them, we get the idea of a ‘stable investment but with a certain degree of profits’. Fixed Deposits can be confusing especially when investors wish to invest yet don’t understand the schemes.

FD is meant to invest your money for a long period of time, and gaining a huge sum of interest a.k.a profit for not withdrawing the money before the maturity date hits. It is a banking instrument for investing money and earning gains.

Advantages for Fixed Deposit

Higher the Interest Rate- Higher the returns and also you get to choose the terms and dates. 

Disadvantages for Fixed Deposit

We cannot think of any except maybe the long maturity dates, but then even that is chosen by the investor.

Bank and Company Fixed Deposits

You could invest via two channels, through your bank or in a company FD. People usually pick a bank as they trust a government controlled organisation more compared to a company or an MNC. However, if we look closely, the difference is startling in the way of how much returns the investor actually gets!

An FD in the bank could give you a maximum of 7-9% based on its capacity and other investments. It seems quite less compared to a company FD. While a prospering company could easily give a maximum of 10% of interest for your investment. It is tricky to find out which company is the right one for you and that is where a company’s credit rating jumps in.

A credit rating system is present to ensure that companies can and will end up repaying their investors, even in times of distress. This credit rating is assigned to a fixed deposit instrument by a credit rating agency after doing a thorough analysis of the business risks, financial risks and the overall management quality.

A major inconvenience is the loss of flexibility, an FD in a bank means no withdrawing rights (under certain circumstances, you can break the FD but pay a penalised fee or get a lower rate of interest). Thus, making you pay additional money from your pockets to get back your own money. That hardly seems fair!

A company FD, on the other hand, allows a variety of schemes that can be manipulated according to your needs and time periods. You could pay a monthly interest or at quarterly intervals. This then allows you as an investor to earn some quick cash on the side.

Company FDs can be used by any target audience; working class, senior citizens, housewives, and even those who are in the zero or low tax bracket. A good idea then is to diversify your funds into different companies which will then lower the chances of risk.

We do suggest to read the application form in detail and to clarify your worries before investing in a company. A track record of the company’s past interest schemes could always provide a good source of information. Another piece of advice is to always keep a check on the credit ratings of the company and to minimise risk by clearing out your money from the company if you see it fall.

On the whole, a company fixed deposit is a good investment idea for the fixed income group investors who are on the lookout for safe returns. Not all can afford the volatile markets, and thus a company fixed deposit can help keep you grounded and your money safe, earning a higher rate of interest at the same time.

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