Fixed Deposits (FDs) are one of the safest and most popular investment avenues. Apart from high returns on your investment, it provides stability and safety to your principal amount. Since FD returns aren’t linked to market performance, they are fixed and guaranteed. So, whether you are planning your retirement or higher education of your children, FDs are one of the most prudent modes of investment.
You can either opt for bank FDs or company deposits with non-banking finance companies (NBFCs). However, the question is which of the two you should opt for? It would be prudent to check the interest rates offered by various banks and NBFCs as they may vary drastically. Apart from interest rates, there are various factors which need to be weighed before taking a decision.
Higher interest rates with company deposits
FD interest rates have been on a decline in recent times. However, deposits from NBFCs come with higher interest rates than the average. It’s the higher interest rates that attract many investors, especially senior citizens, to shift to NBFCs. The high rate of interest helps senior citizens earn more on their investment and take care of their ballooning needs in their twilight years.
NBFCs offer FDs with higher interest rates by 100-200 basis points (bps) than most banks. In the present scenario, established NBFCs offer FDs with interest rates between 7.5-9 percent depending upon the tenor and amount of FD. In addition to this, senior citizens can earn up to 50 basis points more than normal interest rates on FD.
For instance, with Bajaj Finance Fixed Deposits, you can earn high interest rate of 8.40% that can help you accumulate your wealth and build a corpus for future. Moreover, you get flexibility to choose a tenor between 12 to 60 months and frequency of interest payouts.
Senior citizens are entitled for an additional rate of interest up to 0.35 percent over normal rates. You can use an FD calculator to evaluate your returns in advance and invest appropriately.
Choose a company with high credit rating
Keeping the interest rates aside, it’s imperative to choose a company with high credit rating for FDs to ensure safety of your deposits. Rating agencies like CARE, CRISIL and ICRA assign ratings to NBFCs after a comprehensive analysis of financial risks, management quality and ability to service debt. According to CRISIL, ‘FAAA’ denotes highest safety which indicates timely payment of interest with strong company reserves.
As you go lower in the rating charts, the degree of safety with NBFCs reduces. Therefore, while you have decided to invest in FDs with NBFCs, it is important to go for companies with high credit ratings.
If you can sense the fall in ratings, you can close your FD anytime by paying a nominal penalty for pre-mature withdrawal. Hence, it is beneficial to shift to NBFCs with higher stability to earn more on your FDs and create a large corpus for all your financial needs in future.
For instance, Bajaj Finance Fixed Deposit enjoy ICRA’s MAAA along with CRISIL’s FAAA ratings denoting its high stability and safety.