Difference between company fixed deposits and bank fixed deposits
Fixed deposits have traditionally been very popular with most investors since they offer low risk, steady returns and high liquidity. There are two types of fixed deposits available viz: company fixed deposits and bank fixed deposits. Let us closely look at the difference between the two on important parameters:
1. Interest rates Interest rates on bank deposits are determined by banks and are as per the interest rates movements by RBI as well as the liquidity needs of each bank. Within banks co-operative banks offer higher interest rates than public and private sector banks. Risk in co-operative banks is also higher when compared to the public and private sector ones. Company fixed deposits offer higher interest rates than banks as companies compete with banks to attract investor money. Interest payment frequency varies from monthly to quarterly to semi-annual to annual in case of both bank and company fixed deposits. Investor has the facility to get the interest credited to their bank accounts. 2. Safety Bank deposits are guaranteed up to Rs 1lac per account holder per bank as deposit insurance is taken by the bank with the Deposit insurance and Credit Corporation of India, which is a subsidiary of RBI. In the past, RBI has played an active role in the merger of failed banks with successful ones and has not allowed depositors money to be lost in case of a bank failure. Corporate fixed deposits are unsecured in nature and are not guaranteed by the issuing company. 3. Ratings Most companies get their fixed deposits rated from rating agencies to give a comfort factor to the investors. Higher the rating, stronger is the company. AAA rating is the highest available. It is recommended to invest in company fixed deposits which are rated AAA as lower ratings means higher risk of default.