Of late, both public sector and private banking institutions have been on an interest-rate revision spree. The primary driving force for the rise in bank FD interest rates can be attributed to an increase in the repo rates by the Reserve Bank of India.
And till recently, financial experts recommended investing in corporate fixed deposits due to the higher returns that they offered compared to a traditional bank FD. However, with the recent interest-rate hikes, are corporate FDs still attractive? In this article, we’re going to take a look at just that. But then, before we go ahead, let’s first quickly take a look at what corporate FDs are.
What are Corporate Fixed Deposits?
Corporate fixed deposits are very similar to a bank FD. The only difference is that you deposit the money with a corporation instead of a banking institution. The funds that the corporation raises in this manner are often used to further its business objectives.
However, corporate FDs are perceived to be riskier than a similar avenue offered by a banking institution. This is because the company’s repayment ability is heavily dependent on multiple factors like financial health and market forces, among others. Since investors would have to deal with increased investment risk, corporations usually tend to offer higher rates of interest on their deposits.
Do Corporate Fixed Deposits Offer Higher Returns Than a Bank FD?
Traditionally, yes. The interest rates on corporate FDs were higher than most bank FD interest rates. But with the recent hike in interest rates across the banking industry, how do corporate fixed deposits fare? Here are a couple of tables with the fixed deposit interest rate data of a few leading banks and corporations. By comparing the data from these two tables, we can conclusively determine whether the returns of corporate FDs are better than that offered by a banking institution or not.
Bank FD Interest Rates
To enable a more accurate comparison, we’ve taken the FD interest rate data for some of the more popular deposit tenors – 1-year, 2 years and 5 years.
| Bank | FD Interest Rate
(1-year) |
FD Interest Rate (2 years) | FD Interest Rate (5 years) |
| HDFC Bank | 6.10% per annum | 6.50% per annum | 6.50% per annum |
| ICICI Bank | 6.10% per annum | 6.40% per annum | 6.60% per annum |
| Axis Bank | 6.25% per annum | 6.50% per annum | 6.50% per annum |
| State Bank of India | 6.10% per annum | 6.25% per annum | 6.10% per annum |
| Bank of Baroda | 6.10% per annum | 6.10% per annum | 6.10% per annum |
| Canara Bank | 6.25% per annum | 6.25% per annum | 6.50% per annum |
Note: The interest rates mentioned in the table above are as on November 16, 2022, and are subject to change from time to time.
Corporate FD Interest Rates
Now, let’s take a look at the interest rates offered by some of the leading deposit-taking corporations in India for the same tenors.
| Corporation | FD Interest Rate
(1-year) |
FD Interest Rate (2 years) | FD Interest Rate (5 years) |
| Bajaj Finance | 6.55% per annum | 7.25% per annum | 7.50% per annum |
| HDFC Limited | 6.60% per annum | 6.80% per annum | 6.90% per annum |
| Shriram Transport Finance Company | 6.78% per annum | 7.25% per annum | 8.00% per annum |
| LIC Housing Finance | 6.75% per annum | 7.00% per annum | 7.40% per annum |
Note: The interest rates mentioned in the table above are as on November 16, 2022, and are subject to change from time to time.
As you can see, the interest rates of corporate FDs outperform the current bank FD interest rates across all the popular tenors. This effectively means that the returns that you’re likely to get by investing in corporate fixed deposits would be much higher than that of bank FDs.
This result seems to be the same in the case of other more traditional types of investments such as post office savings schemes and Public Provident Fund (PPF). The current interest rates of post office savings schemes range from 4.0% per annum to 7.0% per annum for non-senior citizen individuals. And in the case of PPF, the current rate of interest is 7.1% per annum.
Clearly, the returns offered by corporate FDs comfortably outperform that of most other types of investments.
Should You Invest in Corporate Fixed Deposits?
Yes. If you’re looking for investment options that offer high returns, then a corporate FD is something that you may consider investing in. However, keep in mind that not all NBFCs offer the same level of safety and security for your investment.
Credit rating agencies like ICRA and CRISIL often thoroughly analyse the financials and deposit plans of corporations and assign credit ratings to them. The higher the credit rating issued to the company and the deposit plan, the better since it signifies lower risk.
Therefore, always ensure to take a good look at the credit rating of the corporation and the deposit plan before investing. It might be a good idea to restrict your corporate fixed deposits to just avenues that are rated AAA by CRISIL and MAA by ICRA. Both of these ratings are the highest that the credit rating agencies offer and therefore signify a low risk of default.
Conclusion
To sum up, even in the current environment of high bank FD interest rates, corporate FDs continue to offer better returns than most other kinds of investment options available in India. However, to be on the safer side, remember to always look at the credit ratings of corporations before investing in their fixed deposit.
