Fixed deposits offered by banks and post offices are generally the popular ones, but investing in the FDs offered by NBFCs and companies can get you higher returns.
In view of the safety and steady returns that fixed deposits offer, this instrument has consistently been a preferred investment option for Indians across various age groups. Fixed deposits offered by banks and post offices are generally the popular ones, but investing in the FDs offered by NBFCs and companies can get you higher returns.
Generally, banks offer fixed deposit interest rates ranging from 6 per cent to 8 per cent. NBFCs offer more lucrative interest rates when compared to bank FD interest rates. For instance, Bajaj Finance is offering fixed deposit interest rates as high as 9.10 per cent. Getting a higher FD interest rate determines the return an investor gets on their fixed deposit. Other than that, the FD type, lock-in period, stability of the investment environment, and tax laws all impact the final amount you will get back at maturity. These parameters, however, differ from company to company. Industry experts suggest investors should align their FD investments with their financial goals to be on top of their finances.
Should you opt for it?
Experts suggest the foremost reason for investing in a company FD is because of the high-interest rate it offers, as compared to other issuers. The return on one’s investment is directly proportional to their FD interest rate. For one year FD, the State Bank of India (SBI) currently offers 6.3 per cent for the general public and 7.3 per cent for senior citizens. Bajaj Finance, on the other hand, is offering fixed deposit interest rates ranging between 8.75 and 9.10 per cent. Even a marginal difference amounts to a lot in a longer tenure with a large principal. For instance, if you are investing Rs 5 lakh in an FD with an interest rate of 6.85 per cent, you will earn an interest of Rs 2,02,193 at the end of a 5-year tenor. If the interest rate was 8.75 per cent, your interest accrued would increase to Rs 2,70,771.
The Fixed Deposit of Bajaj Finance has tenors ranging from 12 to 60 months. These FDs also have high credit ratings and are backed by ICRA’s MAAA and CRISIL’s FAAA rating. Experts say this makes them safe and stable. At the time of your FD renewal, you can earn an additional FD rate of 0.25 per cent that adds to your maturity proceeds.
With the second cut in the repo rate this year by the RBI on April 2019, by 25 basis points, the repo rate currently stands at 6 per cent. The repo rate is the rate at which the RBI lends money to other financial institutions, who in turn benchmark this to affix loan interest rates. The fixed deposit rates are the highest now as the repo rates have dipped. Experts say a decrease in repo rates in the future can bring down the FD interest rates too. Hence, it is an ideal time to invest in company FDs when the FD rates are still high.
Tax benefit on company FDs
The Union Budget 2019 has increased the TDS limit on FD interest income. Earlier you had to pay TDS on your FD interest income if it exceeded Rs 10,000. The Interim Budget 2019, however, proposed a limit hike, wherein, for regular investors, TDS will now be applicable on interest earnings of at least Rs 40,000. For senior citizens, the limit remains unchanged at Rs 50,000 and at Rs 5,000 for company FDs. With your PAN details, TDS is cut at 10 per cent or else 20 per cent if you haven’t submitted your details.