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Explore the critical differences between traditional bank Fixed Deposits (FDs) and Commercial FDs. From interest rates to safety, make informed investment decisions with this comprehensive assessment. Understand the features, benefits, and potential pitfalls to choose the right avenue for your savings.


A Fixed Deposit is frequently considered as the most effective saving instrument. It comes with a predefined rate of interest and guaranteed returns. Also, it can be fluently opened online and is offered by all banks. Fixed Deposits in India have always been a favourite mode of investment. Whether it’s for short- term saving, guaranteed returns or low threat saving mode, FDs are always known for stylish saving investment options for common man. But from the last many times’ low bank FDs interest rates are reason to worry for short term investors and making people consider other saving options with high returns.

Investors, particularly senior citizens, dependent on interest income and look for safer investment avenues, find fixed deposits as one of the most favored investment options. still, they remain in a state of bafflement when they’ve to make the factual decision and choose one from the plethora of options available.

What’s a Bank FD?

These are deposits with nationalized and private banks for a pre-defined period, which could range from a many days to numerous times. Banks offer fixed interest rates, depending on the prevailing interest rates in the frugality. colorful maturity options are handed by banks, where the deposit can be automatically renewed on maturity or credited back to the account of the client. also, the investors can choose to reinvest the interest or to withdraw only the interest quantum at fixed intervals.

Fixed deposits in banks is a traditional and the most popular way for Indians to invest/ secure their savings for two reasons – Trust and Access. Since the banking sector is largely regulated and there have been negligible cases of defaults, the bank fixed deposits are treated as the most secure form of investment. Secondly, there are bank branches in every niche and corner of the country, where utmost people have their savings accounts. So, opening a fixed deposit with the same bank branch was the easiest form of earning a return advanced than the savings regard. Further, since the interest rates are assured, the computation of the anticipated return is veritably accessible leaving little mistrustfulness in the minds of investors. Bank fixed deposits up to ₹ 5 lakh are also secured by way of an insurance scheme of RBI, which is obligatory for banks. So, in case of a collapse of a bank, fixed deposit holders are safe to that extent.

Traditional Bank FD’s vs. Commercial FD’s

Bank FD Features and Benefits

  • The Bank FD tenor can range from seven days to ten times.
  • Bank FDs offer returns at maturity or at periodic intervals.
  • These FDs are offered by registered private and state- run banks.
  • The Reserve Bank of India offers the security of over to ₹ 5 Lakh on bank FDs.
  • Grounded on the issuers ’ terms and type of FD, bank FD act as a duty- saving investment instrument.

Advantages of Investing in Bank Fixed Deposit

  • The returns from a bank FD are generally advanced than that of a savings regard.
  • Depending on the issuers, mileage loan against bank FD.
  • Backed by the Reserve Bank of India, bank FDs come with added security.
  • unseasonable pullout installation is available on Bank FD’s still, grounded on the terms of the   issuer, it may be subject to a penalty.

What’s a Commercial FD?

Large Non-Banking Finance Companies (NBFCs) are also in the business of borrowing and advancing funds. Raising funds through fixed deposit schemes from retail investors has been a veritably popular and cost-effective system for them. These deposits generally offer advanced interest rates compared to a bank fixed deposit. The period of deposit could range from one time to 10 times and investors could either withdraw the interest regularly or can conclude to reinvest the interest in the same fixed deposit, in which case the overall return will be advanced. There’s an option to break the deposit before maturity, where there could be a penalty applied on the maturity quantum. These deposits are rated by standing agencies like CRISIL and ICRA. The conditions indicate the capability of the company to service interest payments.

Commercial FDs issued by Housing Finance Companies (HFCs) Non-Banking Financial Companies (NBFCs) offer advanced interest rates than bank fixed deposits, especially the interest rates offered by public sector banks and major private sector banks. still, unlike FDs opened with listed banks, commercial FDs aren’t secured under the insurance cover offered by the Deposit Insurance and Credit Guarantee Corporation (DICGC), an RBI attachment. Hence, depositors should precisely examine the conditions assigned by honored conditions agencies like CRISIL, CARE, ICRA, etc. while opting the commercial FDs.

The credit rating standing agencies assign the conditions on the base of their assessment of the NBFC/ HFC issuing commercial FDs. Commercial FDs having advanced conditions can be considered to carry lower chances of defaults in star and interest disbursements.

Features of Commercial FD

Commercial FD comes with a credit rating standing (similar as AAA) accredited by honored standing agencies similar as CRISIL, ICRA and CARE. The standing indicates the loftiest safety to high threat of dereliction in interest & top payment and therefore helps depositors assess the creditability of the fiscal institution.

NBFCs/ HFCs offer colorful interest pay- eschewal options from which depositors can choose grounded on their conditions. These include yearly, daily, partial monthly pay- eschewal and periodic pay- eschewal options. Alternately, depositors can choose the accretive FD option in which the interest element is reinvested and thereby, helps in inferring the power of compounding. therefore, the accretive option would help the depositor induce advanced returns than non-cumulative options. The companies also offer unseasonable pullout installations to depositors. utmost HFCs and NBFCs levy a correctional rate (which can go up to 2) on public deposits. still, some public deposits come with a cinch- in period of 3 months within which deposits cannot be withdrawn.

Depositors can also mileage of loans against marketable FDs in both accretive and non- cumulative FD schemes. still, some fiscal institutions charge 2 advanced interest rate than the maximum fixed deposit interest rate. The interest income earned from marketable fixed deposits is tested as per the duty pate of the depositor.

The commercial FDs are unsafe than bank fixed deposits as the former aren’t covered under the deposit insurance program handed by DICGC, an RBI attachment. In the case of FDs opened with nationalized and private banks, accretive deposits of a depositor (including his/ her current, fixed, current, and recreating deposits) of over to Rs 5 lakh held with each listed bank are covered by the depositor insurance program from adverse events like bank failures.

List of Documents required for Commercial FD

The following documents are demanded by depositors to open a marketable FD

1. Aadhaar Card

2. Voter ID Card

3. Passport

4. PAN Card

5. Government- validated address validation

6. 2 Colour Passport size photo

Eligibility for Commercial Fixed Deposit

1. Resident of India

2. Members of Hindu Undivided Family( HUF)

3. Partnership companies

4. Corporates

5. Clubs

6. Educational institutions

7. Cooperatives Societies

8. Associations

Parameters to Consider before investing in Commercial Fixed Deposit:

1. Credit ratings: These term deposits are generally rated for their credibility by a many credit rating agencies, like ICRA, CARE, CRISIL, etc. Generally, companies with a AA to AAA credit standing indicate a moderate to high safety of interest payment. As you go lower in the standing map, the degree of safety reduces.

2. Existence: While assessing the financial position and market strength of the corporate, we need to consider and check likely support from a higher-rated parent in the event of distress. The number of years in existence and corporate governance standards of the Group shows the positivity in the market. A strong parent can lend comfort to the investor.

  • Interest rate: The best part about a commercial FD is the advanced interest rate. The rates paid are comparatively much advanced than what’s paid for an average bank FD. It’s important to check and make comparisons for interest rates before concluding for one. Certain NBFCs and companies offer advanced interest rates when compared to others for the same term. The reason for corporates (or further precisely, NBFCs) offering FD rates that are advanced than those of banks is because NBFCs get returns from their lending business which are advanced than those earned by banks, and are thus suitable to pass these on to depositors. At the same time, NBFCs insure that their lending operations are within specified parameters and that asset quality is maintained.

Some of the crucial pitfalls, still, to keep in mind while investing mustn’t be ignored. Make sure that the company has been paying regular dividend to its shareholders and interest to lenders. The financial statements of the companies have shown a harmonious track record of profits/surplus at least for 3 years.

How is Commercial FDs different from Bank FDs?

The difference between the Commercial FD and Bank FD’s are:

1. Commercial FDs offer high rates of interest whereas Bank FDs offer low rates of interest to their customers.

2. The penalty period for early withdrawal is lower as compared to Bank FDs. As per RBI’s guideline if you withdraw commercial from the Fixed Deposits within the three months of term, you have to pay the penalty quantum for early withdrawal of plutocrat. The Penalty charges and term depends on the NBFCs and Companies.

3. Investors with low- trouble capacity should avoid taking marketable FDs because in case of a dereliction from the marketable/ NBFC side you won’t be covered under the deposit insurance program where you’ll get a sum of Rs 5 lakh during failure of the company. Whereas Fixed deposits opened with listed banks are covered under the Deposit Insurance Program offered by DICGC, an RBI attachment. Under this program, accretive bank deposits of a depositor including his fixed, current, recreating and savings deposits for over to Rs 5 lakh with each listed bank are covered in case of bank failure.

Points to Consider

At the time of comparison between Commercial FD and Bank FD, we need to consider the following points to make a well- informed decision:

1. Purpose of investment

List all the reasons why you’re investing in a fixed deposit. This can help you determine whether you need to invest for a short term or a long term. For short- term pretensions, marketable FDs are a great option. Their ice- in ages are shorter and interest rates are advanced, leading to better returns.

2. Market evaluation:

estimate the request Interest rates for bank FDs have been declining over the formerly multitudinous times. Lower interest rates may affect in returns that are shy to combat affectation. thus, it’s important to do the due sedulity before you decide to invest. Given that marketable FDs generally offer advanced interest rates, they can be a better option in similar situations.

3. Review all your options:

Along with interest rates, tenor and ice- in ages, you must also look at all the other benefits, penalties, and attributes of the options available to you. This provides a holistic view of the returns of marketable FD vs bank FD instruments, and can help you decide.


Assessment of Bank FD vs Commercial/Marketable FD is a good way to identify value, but both have their positive and negative aspects. Anyhow of the issuer, fixed deposits are a trusted avenue of investment. Depending on your investment pretensions, you can also choose the safer, low- return bank FDs or the moderate- yield marketable FDs. Other considerations to keep in mind while meaning commercial FD vs Bank FD include the duty benefits, unseasonable withdrawal, and safety. To conclude, investors can get advanced interest with a commercial fixed deposit compared to a bank fixed deposit. But, they need to choose the right company, which has a strong fiscal position and highest credit standing, to insure that their hard earned money/ income remains safe.

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June 2024