While people usually prefer bank FDs for investments, other FD options are available in the market, called company FDs. Are both the FDs the same? Which one suits more for senior citizens?
Seniors investing in fixed deposits (FDs) like them because they are safe, and the return on investment remains constant throughout the tenure. There are two options to invest in fixed deposits: first is the bank FDs, and second is the company FD schemes. While bank FDs are already popular amongst the seniors, are company FDs equally good for them? Let’s find out which FD option suits better to senior investors.
Tenure Options
Tenure in bank FDs ranges from 7 days to 10 years, and some banks offer even a longer maturity period. However, the tenure option in company FDs depends on the company’s terms and conditions and usually starts from 12 months and goes up to 10 years. Some companies may offer deposits for a lesser or greater tenure. Normally, banks offer greater flexibility in terms of tenure choice.
Risk Involved
Bank FDs are popular because they cover up to Rs 5 lakh against default risk through the Deposit Insurance and Credit Guarantee Corporation (DICGC). On the other hand, deposits in company FDs are not secured against default risk. However, company FDs are rated by rating agencies, and a highly rated FD scheme has the lowest chance of default risk.
In terms of risk involvement, seniors may prefer bank FDs over company FDs.
Interest Rate Attractiveness
Interest rates may vary from bank to bank and company to company. Companies with the highest rating usually offer a lower interest rate on their FDs compared to the low-rated companies.
Both banks and companies offer additional interest rates to senior citizens that vary from .25 per cent to .50 per cent per annum over the normal rates. Currently, companies are offering interest rates up to around 9.50 per cent per annum and at the same time banks are offering the interest of around 9 per cent per annum.
In terms of interest level, rates offered by the companies may look more lucrative to the senior investors.
Which One Should You Choose?
Company deposits are a little riskier compared to bank FDs, so seniors stick to the latter one. Also, seniors may find it easier to create or break bank FDs as they can access them easily using their online banking account. So, in terms of safety, flexibility and ease of investing, seniors may like the banks' FDs over the company FDs, unless they want a little more return and are ready to take a higher risk.
The author is an independent financial journalist.