Fixed deposits are one of the most popular saving instruments in India. Apart from being a convenient and simple method of saving, they also offer assured returns which makes it an attractive option for people looking to make safe and reliable investments.
When looking to save in an FD, you are presented with two popular avenues - Bank FDs and NBFC FDs. A bank FD is provided by accredited banks, these are one of the safest saving tools available in the market as bank FDs are highly regulated by the RBI and other authorities. On the other hand, an NBFC FD is one that is offered by a Non-banking Financial Company. The creditworthiness of this type of fixed deposit is measured by various credit ranking agencies such as CRISIL, ICRA and CARE.
Features of Bank FDs
Fixed Deposits, also known as term deposits are offered by most, if not all Indian banks. Through a bank FD, you can deposit a lump sum amount, which will grow at a predetermined rate of return for a specified period of time.
The tenor for bank FDs can range anywhere from 7 days to 10 years, this makes bank FDs an ideal choice for both long-term and short-term saving goals. Additionally, you can get attractive interest rates ranging from 2.25% to 7.50% which would help you maximise your savings.
Bank FDs are an ideal savings choice for anyone that's looking for a secure savings option that offers consistent and predictable returns.
Benefits of Bank FDs
There are a number of benefits to saving in a bank FD, let's take a look at some of the benefits of saving in a bank FD:
- Reliable savings option that is unaffected by market fluctuations.
- Deposits of up to ₹5 Lakhs are insured.
- Allows you to take a loan against your bank FD in case of emergencies.
- Flexible tenors that are ideal for both long-term and short-term savings.
- You may choose a non-cumulative bank FD and receive regular interest payouts.
- You can enjoy tax benefits under the Section 80C or Section 80TTB.
Features of NBFC FDs
NBFC FDs, also known as corporate FDs or company FDs are another popular avenue for fixed deposits. These are fixed deposits that are offered by any Non-banking Financial Company. Much like a bank FD, you can deposit a lump sum amount into an NBFC to grow at a predetermined rate of return for a specified period of time.
Typically, NBFCs typically offer fixed deposits for 1 year to 5 years, making them ideal for both short and long term savings. The returns offered by NBFCs are generally higher than the returns offered by banks, offering anywhere from 5.95% to 8.25%, with senior citizens getting even higher rates of returns. These FDs sometimes offer better returns than senior citizen schemes.
NBFC FDs are a great savings tool for anyone looking for secure and reliable savings options that offer assured returns and guarantee safety of capital.
Before saving into any NBFC FD, it's important to take into consideration the NBFC's credit ratings which would give you a better understanding of its creditworthiness. Moreover, NBFC FDs are not affected by market fluctuations so your returns are assured even if market conditions waver.
Benefits of NBFC FDs
Saving in NBFC FDs comes with a number of advantages. Here are some of the benefits of saving with an NBFC FD:
- NBFCs with FAAA, MAAA or similar credit ratings are extremely creditworthy, which ensures security of your savings.
- The tenors for these deposits typically range anywhere from 1 year to 5 years making it a wise choice for both long-term and short-term saving goals.
- NBFC FDs are one of the easiest ways to make any savings, as they generally take only a matter of minutes and can be done from the comfort of your home.
- You can choose between a cumulative or a non-cumulative one depending on your financial goals and requirements. If you're looking for a regular source of income through interest payouts, you might be better off opting for a non-cumulative FD. However, if your primary goal is to grow your savings, you might be better positioned to save into a cumulative FD which would allow you to take full advantage of the power of compounding.
Difference Between Bank and NBFC FDs
There are a number of differences between bank and NBFC FDs that you should take into account before saving into either one of these. Here's a comprehensive table with the key differences between NBFC FDs and bank FDs.
|
Parameters |
NBFC FDs |
Bank FDs |
|
Interest Rates |
NBFC FDs typically offer higher rates of return, ranging from 5.95% to 8.25% |
Bank FDs' interest rates tend to range from 2.25% to 7.50% |
|
Safety |
Very safe, low risk of default. Additionally, RBI insures deposits of up to ₹5 Lakhs. |
NBFC FDs rates FAAA or MAAA or similar credit ratings are extremely creditworthy and pose little to no risk of default. |
|
Convenience |
Although many banks are now offering online FD facilities, bank FDs typically require you to do extensive documentation and visit a branch for deposits, documentation and withdrawals. |
NBFC FDs can be opened online, within a matter of minutes. Many NBFCs even offer doorstep collection facilities which makes saving simple and straightforward. |
|
Tax Benefits |
Many banks offer 5-year FDs which offer tax benefits under Section 80C. |
NBFC FDs do not come with tax benefits. |
Conclusion
There are a number of benefits to saving into both bank and NBFC FDs, they are safe and reliable modes of saving that provide you with assured and predictable returns. They are also a simple and convenient savings tool that will help you budget for your future while also helping you achieve your saving goals. If you're looking for higher rates of return and convenience, it might be a good idea for you to save into an NBFC FD. However, if you're looking for tax benefits, you might be better off saving into bank FDs.
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