Corporate Fixed Deposits offer high interest rate, know what are the benefits

In the last one year, the interest rate offered by leading banks on fixed deposits has fallen by about two per cent. This is reducing the attractiveness of investors towards FD. In such a situation, experts recommend investing in corporate fixed deposits. Corporate FDs can avail interest rates of up to 2 percent more than bank FDs.

However, corporate balance sheets are also under stress due to financial stress caused by the coronavirus epidemic. Therefore, experts say that one should remain selective while investing in corporate FDs. Experts recommend investors to invest only in corporate FDs rated AAA to ensure the safety of capital. Currently, AAA-rated corporate FDs are offering interest rates between 6 and 8 per cent depending on the investment tenure.

Mortgage lender HDFC is currently offering a 6.20% interest rate on FDs of 15 months duration. At the same time, Bajaj Finance is offering 6.9 percent interest rate on FDs of 12 to 23 months. Both of them come with a corporate FD AAA rating. This means that your capital security is the highest in this.

Corporate FDs offer higher rates of interest to customers, but here premature withdrawal rules are very stringent. Pre-matured withdrawals are not allowed in the first three months of deposit in corporate FDs. After the first three months, different companies charge different fees on pre-mature withdrawals. For example, HDFC Limited pays only three per cent interest on pre-maturity withdrawals after three months and before six months. On pre-maturity withdrawal after six months, HDFC pays one percent less than the interest rate applicable for the period.

What is Corporate FD

Corporate deposits are issued by a company rather than a bank. Their maturity period is usually from six months to three years. Here the interest rate is higher than bank FD. The risk in corporate FDs is higher than that of bank FDs, as they are related to the business of companies. However, higher-rated corporate FDs have lower risk and increase investor safety of capital.