If you are looking for better interest rates than what banks offer, corporate fixed deposits (FDs) from non-banking financial companies (NBFCs) and housing finance companies (HFCs) might catch your interest. These deposits often provide higher returns, making them an attractive option for those wanting to grow their savings.
“One of the key advantages is the higher interest rates that corporate FDs give compared to traditional bank FDs, often 1-2% more, depending on the company’s credit rating and the duration of the deposit,” says Adhil Shetty, CEO of Bankbazaar.com. This increase can make a noticeable difference to your investment.
What else do corporate FDs offer? Let’s break it down:
Higher interest rates: Corporate FDs often offer 1-2% more than traditional bank FDs, depending on the company’s credit rating and the tenure of the deposit. This means more income for investors.
Flexible tenures: You can choose from a variety of deposit periods, ranging from a few months to several years, depending on your financial goals.
Low minimum investment: With a low entry point, these deposits are accessible to a wide range of investors, making them appealing even for those who don’t have large sums to invest.
Diversification: Corporate FDs allow you to spread your investments across different products, which helps in balancing risk and return, especially when combined with other asset classes.
Regular income: With monthly, quarterly, or annual interest payout options, corporate FDs provide a steady income stream, which is useful for those seeking regular returns, according to BankBazaar.
How do corporate FD interest rates compare in September 2024?
Here’s a list of some corporate FDs and their current interest rates, sourced from PaisaBazaar:
1. Shriram Finance
Credit Rating: ICRA – AA+/Stable, IND AA+/Stable by India Ratings
Highest interest rate slab: 8.47%
Tenure: 50 months, 5 years
1-year tenure rate: 7.59%
3-year tenure rate: 8.38%
5-year tenure rate: 8.47%
Senior citizen rate: Additional 0.05%
2. Mahindra Finance
Credit Rating: Crisil – AAA/Stable, India Ratings – IND AAA/Stable
Highest interest rate slab: 8.1%
Tenure: 3 years, 5 years
1-year tenure rate: 7.5%
3-year tenure rate: 8.1%
5-year tenure rate: 8.1%
Senior citizen rate: 0.10%-0.25%
3. Manipal Housing Finance Syndicate Ltd
Credit Rating: ACUITE – ACUITE A
Highest interest rate slab: 8.25%
Tenure: 1 year, 2 years, 3 years
1-year tenure rate: 8.25%
3-year tenure rate: 8.25%
5-year tenure rate: 7.75%
Senior citizen rate: Additional 0.025%
4. PNB Housing Finance Ltd
Credit Rating: Crisil – AA+/Stable, CARE – AA+/Stable
Highest interest rate slab: 7.75%
Tenure: 36-47 months
1-year tenure rate: 7.45%
3-year tenure rate: 7.75%
5-year tenure rate: 7.6%
Senior citizen rate: 0.20%-0.30%
5. Sundaram Home Finance
Credit Rating: Crisil – AAA/Stable, ICRA – AAA/Stable
Highest interest rate slab: 7.9%
Tenure: 4 years, 5 years
1-year tenure rate: 7.45%
3-year tenure rate: 7.75%
5-year tenure rate: 7.9%
Senior citizen rate: 0.35%-0.50%
6. HDFC Ltd
Credit Rating: Crisil – AAA/Stable, ICRA – AAA/Stable
Highest interest rate slab: 7.85%
Tenure: 3 years, 5 years
1-year tenure rate: 7.45%
3-year tenure rate: 7.85%
5-year tenure rate: 7.75%
Senior citizen rate: 0.25%-0.35%
7. ICICI Home Finance
Credit Rating: Crisil – AA+/Stable, ICRA – AA/Stable
Highest interest rate slab: 7.9%
Tenure: 2 years, 5 years
1-year tenure rate: 7.6%
3-year tenure rate: 7.75%
5-year tenure rate: 7.9%
Senior citizen rate: 0.35%-0.45%
8. LIC Housing Finance
Credit Rating: Crisil – AAA/Stable, CARE – AAA/Stable
Highest interest rate slab: 7.75%
Tenure: 3 years, 5 years
1-year tenure rate: 7.45%
3-year tenure rate: 7.75%
5-year tenure rate: 7.6%
Senior citizen rate: 0.25%-0.35%
9. Bajaj Finance
Credit Rating: Crisil – AAA/Stable, ICRA – AAA/Stable
Highest interest rate slab: 8.1%
Tenure: 2 years, 5 years
1-year tenure rate: 7.7%
3-year tenure rate: 8.1%
5-year tenure rate: 8.1%
Senior citizen rate: 0.25%-0.35%
10. Tata Capital
Credit Rating: Crisil – AA+/Stable, ICRA – AA/Stable
Highest interest rate slab: 7.95%
Tenure: 3 years, 5 years
1-year tenure rate: 7.55%
3-year tenure rate: 7.95%
5-year tenure rate: 7.85%
Senior citizen rate: 0.30%-0.35%
11. HDB Financial Services
Credit Rating: Crisil – AA+/Stable
Highest interest rate slab: 8%
Tenure: 3 years, 5 years
1-year tenure rate: 7.5%
3-year tenure rate: 8%
5-year tenure rate: 8%
Senior citizen rate: 0.25%-0.30%
12. Indiabulls Housing Finance
Credit Rating: CARE – AA+/Stable
Highest interest rate slab: 7.85%
Tenure: 2 years, 5 years
1-year tenure rate: 7.55%
3-year tenure rate: 7.85%
5-year tenure rate: 7.85%
Senior citizen rate: 0.25%-0.30%
13. DHFL
Credit Rating: Crisil – AA/Stable
Highest interest rate slab: 7.75%
Tenure: 1 year, 5 years
1-year tenure rate: 7.45%
3-year tenure rate: 7.75%
5-year tenure rate: 7.75%
Senior citizen rate: 0.25%-0.30%
While corporate FDs offer enticing returns, they come with certain risks, which investors must be aware of.
“The primary concern is credit risk, where the issuing company may default on interest or principal payments if it faces financial issues,” says Shetty. This risk is higher than with bank FDs, which are typically insured.
Here are some key risks to consider:
Credit risk: If the company experiences financial trouble, it might default on its payments.
Liquidity risk: Some corporate FDs have restrictions on premature withdrawal or impose penalties, unlike the more flexible withdrawal options available with bank FDs.
Lack of insurance: Unlike bank FDs, corporate FDs are not covered by deposit insurance, meaning there is no protection if the company defaults.
How to evaluate corporate FDs
The best way to assess a corporate FD’s safety is by checking its credit rating. These ratings, assigned by agencies like Crisil, ICRA, and CARE, provide insights into the company’s financial health and the risk associated with its FDs.
Here’s a guide to understanding credit ratings:
AAA or AA: These ratings indicate low risk and a high likelihood that the company will meet its repayment obligations. It’s generally a safer bet.
A or BBB: A moderate rating, where the company is likely stable but might face challenges if market conditions change.
BB or below: A lower rating reflects higher risk, and there’s a greater possibility that the company may default on its payments.
Credit ratings help you gauge the risk level before investing.
Tax liability
Just like bank FDs, interest earned on corporate FDs and fixed deposits offered by HFCs are also taxable at the highest income tax bracket of the deposit holder. However, the investor needs to pay tax only if the annual interest income from the deposit is above Rs 5,000.
