Fixed deposits (FDs) are safe savings instruments of a fixed tenure offered traditionally by banks and financial institutions. Since safety and risk go hand in hand, a low-risk savings instrument tends to offer a lower interest. To earn interest at a higher rate, one can explore options beyond big banks. Corporate entities such as Bajaj Finance and Mahindra Finance offer fixed deposits that bear interest at a higher rate.
Key features of corporate FDs
Ratings: Since corporate FDs are not as safe as bank FDs, depositors are expected to check the ratings of these deposits before investing money into it. The safety of corporate FDs is accredited by the ratings agencies such as CRISIL and ICRA.
Rate of interest: The rate of interest is higher than that of bank FDs. One can earn between 5.5% to 7% on corporate FDs in comparison to bank FDs that bear an interest of 5% to 5.5%.
Market volatility: Although FDs are issued by the companies, their share price and overall market sentiment does not impact the interest offered by the FDs – at least not in the short term.
Loans against FDs: Just as a bank FDs, one can raise a loan on the corporate FD up to 75 percent of FD value.
Bajaj Finance: For deposits of term ranging between 12-23 months, annual interest is 5.75 percent, for deposits made for 24-35 months, annual interest is 6.20 percent and for the deposits made for a tenure of 36 to 60 months, annual interest is 6.6 percent.
Months Annual interest
12-23 months 5.75 percent
24-35 months 6.20 percent
36-60 months 6.6 percent
Mahindra Finance: An FD made for 12 months with Mahindra Finance can earn an annual interest of 5.7 percent per annum. The interest rises to 6.2 percent per annum when the duration is 24 months, and to 6.3 percent when the duration is 36 months.
Tenure Annual interest
12 months 5.7 percent
24 months 6.2 percent
36 months 6.3 percent
State Bank of India (SBI): The leading state lender State Bank of India (SBI) charges 5 percent per annum for a fixed deposit (FD) with a tenure of 12 months. The interest rises to 5.1 percent when the tenure rises to 24 months, and it rises to 5.3 percent when the tenure is 36 months.
Tenure Annual interest
12 months 5 percent
24 months 5.1 percent
36 months 5.3 percent
Illustration: Let’s assume that someone keeps a fixed deposit of ₹2 lakh for a period of 3 years, then the interest earned on it (before tax) will vary based on where the deposit has been made.
If the FD has been opened with Bajaj Finance for three years, the interest earned will be ₹39,600 (2,00,000 x 6.6/100 x 3). When deposited with Mahindra Finance, the interest earned will be ₹37,800. And in case of SBI, the interest earned will be ₹31,800.
So, we realised that there is a marginal difference between the FD interest rates of banks and those of corporates. While State Bank of India (SBI) garners an income of ₹31,800 on an FD amounting to ₹2 lakh, the FD of similar amount can bring an income of ₹39,600 – a difference of ₹7,800.