Company Fixed Deposit vs. Post Office Fixed Deposit – Know Interest Rates in December 2020
As you research before setting up an option of investment avenues, in the same way, you need to research to get the best returns on fixed deposits (FDs). Fixed deposit investment avenue is available with different financial institutions i.e. Banks, Non-banking Financing Companies, and Post Offices at different interest rates.
A fixed deposit is a contract between the financial institution and the depositor for a certain period. However, a fixed deposit can be paid prematurely to the depositor as per the penalty terms of the contract.
Let us discuss different FDs with different financial institutions.
1. Bank Fixed Deposits
When you think about fixed deposits, the first name that may come to your mind is banks. Bank FD accounts can be opened with a cooperative bank, a commercial bank, or a small bank. Commercial banks are free to determine their deposit interest rate and offer varying rates for different sizes and maturities of deposits above a cut-off by the Reserve Bank of India (RBI). RBI has cut repo rates so banks also had to decrease interest rates on FDs.
Banks can formulate their special fixed deposit schemes. But, RBI prescribes that there should be a uniform interest rate by each bank. The FD interest rate with major banks is between 4-6 %. Small banks offer slightly higher interest rates on FDs but there is no credibility equal to major banks. Premature withdrawal has also been left to each bank. NRIs can open Non-Resident Ordinary (NRO)/Non-Resident (External) (NRE) deposit accounts.
Bank FDs are insured deposits up to a tune of Rs 5 lakhs. The minimum amount to start an FD will vary from bank to bank.
2. Company Fixed Deposits
When an investor starts his/her FD account with a company for a fixed lock-in period carrying a fixed rate of interest is called Company Fixed Deposit or Corporate FDs. These are regulated by the Companies Act under Section 58A. Most companies offer FDs for a maximum period of 5 years.
Company FDs are not just flexible with a lower lock-in period and investing amount but offer a higher rate of interest than banks. They are backed by reputed credit rating agencies. For example, Bajaj Finance FD has received a superior credit rating of FAAA/Stable by CRISIL and MAAA/Stable by ICRA.
Company FDs are not regulated by laws followed by banks therefore, NBFCs are not influenced by the changes in the RBI’s monetary policy so, still, they are offering higher interest rates than banks.
You can open an FD account for 12 to 60 months and senior citizens can enjoy 0.25% additional interest rates. You can start Bajaj finance FD with as low as Rs.25,000 and up to one crore. Bajaj Finance FD rates are in the range of 6.60 – 6.85 %, i.e. 1-2% higher than bank FD rates.
3. Post Office Fixed Deposits
Post Office Time Deposit (TD) also known as National Savings Time Deposit can be started with INR 1000/- and can be deposited in multiples of 100 without any maximum limit.
The available lock-in periods are 1 year, 2 years, 3 years, and 5 years. The interest rate will vary as per the lock-in period from 5.5-6.7%. No deposit can be withdrawn before six months of opening the account. If an FD account is closed after 1 year, the interest rate will be penalized by 2%.
An adult individual can open an FD account as a single account or a joint account. Minor FDs are also available to be opened by a minor’s parent or legal guardian.
Company FD vs. Post Office FD
Company FDs such as Bajaj Finance FD offer a higher interest rate than the bank FDs and post office FDs. Post office savings interest rates for other savings schemes are better than bank FDs.
Senior Citizen FDs
Most of the companies encourage senior citizen FDs by offering high-interest rates to them. But the post office FDs do not provide extra interest benefits to senior citizens. However, the post office offers other saving schemes for senior citizens than FDs. With Bajaj Finance FD you can gain higher rates up to 6.85% for a five-year term as a senior citizen.
Bank FDs are more flexible than the post office. Company FDs like Bajaj Finance also offer 12 to 60 months of the tenor. Post office FDs are available for 1,2,3,5 years only.
The Bottom Line
Apart from savings, fixed deposits (FDs) offer numerous benefits. But company FDs can increase your FD returns more than an FD with another financier that leads to wealth creation. You can diversify your investment with banks and top-rated NBFCs having AAA safety ratings. Pay attention to safety and liquidity also.
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at Highlight Story.