A Company fixed deposit (FD) is a financial instrument provided by banks or NBFCs which provides investors a higher rate of interest than a regular savings account, until the given maturity date. It may or may not require the creation of a separate account.
Fixed deposits are a high-interest -yielding Term deposit and offered by banks across the world. The most popular form of Term deposits are Fixed Deposits, while other forms of term Deposits are Recurring Deposit and Flexi Fixed Deposits (the latter is actually a combination of Demand deposit and Fixed deposit)
Company fixed deposits (FDs) are a very popular investment option amongst senior citizen investors as they give them assured returns, which are generally 1% to 3% higher than the interest rates being offered by banks for similar periods. There are many company fixed deposit schemes which have an option to pay interest at monthly or quarterly intervals, and investors find it quite attractive to supplement their regular income from pension etc.
ADVANTAGES OF COMPANY FIXED DEPOSITS
- If you Invest in a fixed deposit account, you will earn a higher interest rate than leaving your money in a savings account as FD’s interest rates are highly negotiable. Furthermore, It is easy to raise a loan against your FD.
- You can borrow up to 90 per cent of the FD’s amount in fixed deposits
- One of the major advantage of investing in Fixed Deposit is its guaranteed return.
- The only reason why our parents and many in our generation also have this single concept of investment is because of its safety features.
- It is easy to raise a loan against your FD.
- Lastly, The next advantage is the flexible maturity date, it is for this feature that you can invest for a time frame that is as less as 6 months to as long as 10 years or even more.
DISADVANTAGES OF COMPANY FIXED DEPOSITS
- Firstly, Fixed Deposits as an investment is less risky then this aspect is the reason why its returns are lower compared to other investment options.
- Another disadvantage is the issue of liquidity, while your money is locked up with the bank, it is not easy to withdraw at a moment's notice.
- In Fixed deposits, if you withdraw before the agreed duration, you will be penalised.
- There is zero tax benefit in fixed deposits, unlike the infrastructure bonds or the National Savings Certificate (NSC). So, even from a taxation point this is not the best of investment options.
- Some banks charge as much as 1 per cent, if you beak the deposit early, which means you need to either make sure that you invest in multiple deposits of small amounts.