6 things you should know about company fixed deposits

I recently received a comment from a reader about investing in company fixed deposits, and I thought I should do a post about some important things to keep in mind while investing in company fixed deposits.  So, here is a post with a few pointers on company fixed deposit.

Company Fixed Deposits
Company Fixed Deposits

1. Company fixed deposits offer better interest rates than banks

You probably know this already but it is an important enough point to be on top of the list. Company fixed deposits will give you a higher return than comparative bank fixed deposits. This is because of the additional risk, for example the DHFL fixed deposit that was concluded a few months ago offered interest rate of 9% per annum, when the highest any bank was offering was 7%.

2. Additional risk

Company fixed deposits have higher risk than bank fixed deposits because these type of deposits are unsecured, if the company goes bust you will lose your money, and unlike banks, they don’t have any backing of the RBI. A lot depends on the performance and reputation of the company of course. A strong company that regularly pays out dividends and has no losses is perhaps a good bet, whereas a company that has made regular losses should raise eyebrows.

3. Company fixed deposits are rated by Rating Agencies

The rating agencies hand out ratings to the particular offering, and that can help you make a decision. For example, The Shriram Transport Finance FD scheme was rated tAA (investment grade) by Fitch. These ratings can help raise flags if any offering is rated low, and you can possibly avoid such fixed deposits.

There was a comment that asked what the RBI rating of a fixed deposit was, but RBI does not rate company fixed deposits, and in case of default by the company – RBI is not going to back them in any way.

4. Company fixed deposits may be unsecured

Company fixed deposits may be unsecured debt, which means there is no underlying collateral, and in case of default, you won’t get the funds back by selling off your documents.

5. TDS on Company Fixed Deposits

If the interest you get from the deposit is less than Rs. 5,000 in a year, then there won’t be any TDS on it. You can think about spreading your investments in multiple fixed deposits if you foresee a situation where your interest is going to be larger than Rs.5,000 from one fixed deposit.

6. You could keep a shorter horizon

Normally, a  higher time period will get you higher interest rates, but if you are not very comfortable with investing money in a company fixed deposit then you can select a shorter time frame like a  year.

Like most investing decisions, whether you invest in these things or not, and how much money you do will depend on your particular circumstances. If you prefer safety over everything else, then it is best to leave these things alone. If you have a moderate risk appetite then you might as well try investing money with some of the better known companies.

Image: Bhautik Joshi

Update: The earlier version said that company fixed deposits are always unsecured debt. This is not always true, in some cases they issue secure debt as well.

Fixed deposits interest rates in India

Update: I am no longer updating this page, but you can find some of the best interest rates currently offered in India here.

As I reviewed my bank interest rates in India page to see if it needed to be updated – I saw that I didn’t include a few banks that were paying a pretty decent interest rate on fixed deposits in India.

So, let me show you an updated table of banks and the fixed deposit interest rates they are paying right now. As I went about making this fixed deposit comparison, I realized that a lot of banks pay less than 3.5% on fixed deposits of say 45 days or less. The savings account pays 3.5% so why would anyone make a fixed deposit of anything less than 3.5%?

Am I missing something?

Updated on 10th Jan 2011

Update: Feb 27th 2011

S.No. Bank 1 Year to < 2 years 2 Years to < 3 years 3 Years to < 5 years More than 5
1 Allahabad Bank 8.00% 8.25% 8.25% 8.30%
2 Andhra Bank 9.00% 9.25% 8.00% 8.00%
3 Axis Bank 8.75% 8.25% 7.00% 7.00%
4 Bank of Baroda 8.75% 9.10% 8.75% 8.25%
5 Bank of India 8.75% 9.25% 8.25% 7.00%
6 Bank of Maharashtra 8.30% 9.25% 8.30% 8.00%
7 Canara Bank 8.75% 9.10% 9.25% 8.00%
8 Central Bank of India 8.75% 8.75% 8.80% 8.60%
9 Dena Bank 8.25% 9.00% 8.25% 7.75%
10 HDFC Bank 8.25% 9.00% 8.25% 8.25%
11 ICICI Bank 8.50% 9.25% 9.25% 8.25%
12 IDBI Bank 9.00% 9.25% 8.60% 8.50%
13 Indian Bank 8.50% 9.40% 8.50% 8.00%
14 Indian Overseas Bank % % % %
15 Indus Ind Bank 9.00% 8.75% 8.75% 8.50%
16 J&K Bank 8.50% 8.50% 8.50% 8.25%
17 Karnataka Bank 9.75% 9.50% 9.25% 8.75%
18 Karur Vysya Bank 10.00% 9.75% 9.00% 8.00%
19 Kotak Bank 9.25% 9.40% 9.25% 8.75%
20 PNB % % % 8.50%
21 Punjab and Sind Bank 9.00% 9.25% 9.05% 8.75%
22 South Indian Bank 9.25% 8.75% 8.75% 8.25%
23 State Bank of Hyderabad % 9.25% 8.75% 8.75%
24 State Bank of India 8.25% 9.00% 8.25% 8.50%
25 State Bank of Patiala 8.50% 9.00% 8.25% %
26 State Bank of Travancore 9.25% 9.25% 9.25% 8.75%
27 Syndicate Bank 9.25% 9.25% 9.00% 8.60%
28 UCO Bank 9.00% 8.50% 8.50% 7.75%
29 Union Bank of India 8.50% 8.75% 9.00% 8.00%
30 Vijaya Bank 9.25% 9.25% 8.50% 8.25%

Click on the New Here page to see how you can make the best use of this site.

Update: For some time there used to another fixed deposit interest rates in India page which had a few more banks than given in this list, but now I have included all those here as well.

Click on the New Here page that tells you how to make the best use of this site.

Shriram Transport Finance FD Scheme

Shriram Transport Finance has come out with a fixed deposit (FD) scheme, and here are some details about their offer.

The Shriram Transport FD can be taken out for tenures of 12, 24, 36, 48 and 60 months, and investors can either opt for cumulative or non – cumulative deposits. The minimum investment is Rs.10,000 and multiples of Rs.1000 after that.

Here is the quarterly per annum interest rate for the different durations on the Shiram Transport Finance FD.

Tenure Interest Rate
12 8.00%
24 8.50%
36 9.00%
48 9.00%
60 9.00%

As I look at the bank interest rates page to check out the current interest rate given out by banks in India, I see that most banks are paying 6.25% or 6.50% for 1 year, and up to 7.50% for 5 years, so this is clearly higher than what banks pay. The reason for that is the credit of Shriram Transport Finance is not as good as the major Indian banks, that is the reason they pay extra for raising money through a FD. In fact, Business Line said that investors with a high risk appetite should consider a FD from Shriram Transport Finance. This was back in June 2009, and the interest rates offered were higher still.

For whatever it’s worth, Fitch has assigned a tAA (investment grade) rating to this offering. Here is a link to the application form, if you are interested in this FD. You can also invest through your broker like ICICI Direct.

NRI Interest Rates: NRE Rates

Update: After the rule changes in December 2011 – banks can set much higher rates for NRE deposits, and I’ve created a new post with the best NRE fixed deposit rates.

I got a comment about compiling a table for interest rates for NRIs. I thought I’d start off with NRE FD rates first, and then move on to other rates. So, here is a table with NRE FD rates as on 1st April 2010.

After compiling these results I noticed that almost all the banks offer the same interest rate. I suspect that the banks that show a different interest rate in the table below also offer the same interest rate as others, but have either not updated their pages, or I haven’t been able to find the correct interest rate. I will try and update this frequently, but for now keep in mind that these NRE Interest Rates were compiled on April 2010.

 

S.No. Bank Tenure

Interest Rate

1 Karur Vysya Bank 1 year to 2 years

10.00%

2 City Union Bank 1 year and less than 3 years

10.00%

3 Tamil Nadu Mercantile Bank 1 year – less than 2 years

10.00%

4 Karnataka Bank 1 year to less than 2 years

9.75%

5 Dena Bank  1 year only

9.60%

6 State Bank of Travancore 1 year to less than 2 years

9.50%

7 South Indian Bank 1 year to 2 years

9.50%

8 Corporation Bank 1 year to less than 2 years

9.50%

9 IDBI Bank 1 year 1 day – 10 years

9.50%

10 J&K Bank 2 years to less than 5 years

9.50%

11 Federal Bank  1 year only

9.50%

12 Indian Bank 1 year to less than 3 years

9.50%

13 Andhra Bank 1 year

9.40%

14 Central Bank of India 1 year to less than 2 years

9.25%

15 Vijaya Bank 1 year to less than 2 years

9.25%

16 Bank of Baroda 1 year to less than 2 years

9.25%

17 ICICI Bank 390 / 590 / 990 days

9.25%

18 HDFC Bank 1 year 16 days

9.25%

19 SBI
1 year – 10 years

9.25%

 

State Bank of India Interest Rates

Update: October 18 2012

I updated my bank interest rates page yesterday, and realized how many different types of interest rates there are. So, I thought I’d create this page with State Bank of India interest rates that will act as a reference for different types of interest rates as well as a ready reference – if someone is specifically interested in SBI interest rates.

"state bank of india interest rates"
Interest Rates

1. Domestic Term Deposits: The first one in the list is interest rates for domestic term deposits below one crore rupees.

Here is the table that has those rates.

Tenor

Below Rs.15 Lakhs

Rs.15 lakhs to less than Rs. 1 Cr

Existing Rates w.e.f. 07.08.2012

Revised rates  w.e.f. 07.09.2012

Existing Rates w.e.f. 07.08.2012

Revised rates

w.e.f. 07.09.2012

7 days to 90 days

7.00

6.50

8.00

7.50

91 days to 179 days

7.00

6.50

8.00

7.50

180 days

7.00

6.50

8.00

7.50

181 days to 240 days

7.25

6.50

8.00

7.50

241 days to less than 1 year

7.50

6.50

8.00

7.50

1 year to less than 2 years

9.00

8.50

9.00

8.50

2 years to less than 3 years

 

9.00

 

8.50

 

9.00

 

8.50

3 years to less than 5 years

 

9.00

 

8.50

 

9.00

 

8.50

5 years and up to 10 years

8.50

8.50

8.50

8.50

 

2. Domestic Term Deposits for more than one crore rupees: If you have more than a crore to spare for a term deposit – you will get a different interest rate. Here is that table:

Tenor

Rs.15 lakhs and above  to less than Rs. 1 Crore

Existing premiums w.e.f. 07.08.2012

Revised Premiums

w.e.f. 07.09.2012

Effective Rate

w.e.f. 07.09.2012

7 days to 90 days

100 bps

100 bps

7.50

91 days to 179 days

100 bps

100 bps

7.50

180 days

100 bps

100 bps

7.50

181 days to 240 days

75 bps

100 bps

7.50

241 days to less than 1 year

50 bps

100 bps

7.50

1 year to less than 2 years

8.50

2 years to less than 3 years

8.50

3 years to less than 5 years

8.50

5 years and up to 10 years

8.50

3. Resident Indian Senior Citizens: Senior citizens get a slightly interest rate in India, but not if their deposit is more than a crore. Here is a table that shows these rates:

Tenor

Below Rs.15 Lakhs

Rs.15 lakhs to less than Rs. 1 Cr

Existing Rates w.e.f. 07.08.2012

Revised rates  w.e.f. 07.09.2012

Existing Rates w.e.f. 07.08.2012

Revised rates  w.e.f. 07.09.2012

 

7 days to 90 days

7.00

6.50

8.00

7.50

91 days to 179 days

7.00

6.50

8.00

7.50

180 days

7.00

6.50

8.00

7.50

181 days to 240 days

7.25

6.50

8.00

7.50

241 days to less than 1 year

7.50

6.50

8.00

7.50

1 year to less than 2 years

9.50

9.00

9.50

9.00

2 years to less than 3 years

9.50

9.00

9.50

9.00

3 years to less than 5 years

9.50

9.00

9.50

9.00

5 years and up to 10 years

9.00

9.00

9.00

9.00

 

4. SBI staff and pensioners: If you are a SBI employee or pensioner – you will get 1% extra on top of the regular interest rate. If you are a pensioner above 60 years old, then you will get dual benefit – 0.50% extra for senior citizens, and 1% extra for the staff.

5. Savings Bank Interest Rates: Savings account get an interest rate of 3.5%.

Let me know if I missed out anything or if you have any other questions, and also look at the fixed deposit rates in India offered by other banks.

If you are a NRI, then the NRI Interest Rates page will be more meaningful for you, and if you are looking for more information on fixed deposits, then this page lists down more resources on fixed deposits.

Click on the New Here page to see how you can make the best use of this website.

Image by nOr

DHFL Fixed Deposit Plan

Dewan Housing Finance Limited (DHFL) is offering fixed deposits at an interest of 9% per annum.

This is certainly much higher than the fixed deposit rates that most banks offer. If you are a shareholder of DHFL then you get an additional 0.25%, and I didn’t find any text that specified that you had to be a shareholder for at least x number of years, or anything to that effect. So, you could buy DHFL shares and bump up the yield by a bit.

A higher interest rate means that the risk is also slightly higher, but they offer good yields for periods as short as a year, and this combined with their AA+ rating from CARE does offer some confidence.

DHFL is offering two fixed deposit plans right now.

DHFL Aashray Deposits II

CUMULATIVE SCHEME
Period in Months Interest Rate in % Deposit <Rs.25 Lac Annual Yield % Interest Rate in % Deposit
Rs.25 Lac and above
Annual Yield %
12 9.00% 9.20% 9.25% 9.45%
24 9.10% 9.75% 9.35% 10.03%
36 9.25% 10.38% 9.50% 10.70%
48 9.00% 10.55% 9.25% 10.90%
60 9.00% 11.06% 9.25% 11.43%
72 9.00% 11.60% 9.25% 12.01%
84 9.00% 12.17% 9.25% 12.61%
Minimum deposit Rs.2,000/-

Additional deposit in multiple of Rs.1,000/-

This scheme offers an additional 0.25% for senior citizens, widows, armed forces personnel, existing DHFL customers and shareholders.

Link to its page

DHFL Swayamsidha Deposit Scheme

This has got a slightly higher interest rate than the first scheme, but this is meant for women or joint deposits where women are the first holders.

Scheme Details:

CUMULATIVE SCHEME
Period in Months Interest Rate in % Deposit <Rs.25 Lac Annual Yield %
500 Days 9.10% 9.48%
Minimum deposit Rs.10,000/-
Additional deposit in multiple of Rs.1,000/-

The scheme offers an additional 0.25% for women senior citizens.

Link to its page

If you are interested in these plans, you can go to their website through the links given in this post and ask them to contact you via phone or email.

Cumulative Scheme:

CUMULATIVE SCHEME
Period in Months Interest Rate in % Deposit <Rs.25 Lac Annual Yield % Interest Rate in % Deposit
Rs.25 Lac and above
Annual Yield %
12 9.00% 9.20% 9.25% 9.45%
24 9.10% 9.75% 9.35% 10.03%
36 9.25% 10.38% 9.50% 10.70%
48 9.00% 10.55% 9.25% 10.90%
60 9.00% 11.06% 9.25% 11.43%
72 9.00% 11.60% 9.25% 12.01%
84 9.00% 12.17% 9.25% 12.61%
Minimum deposit Rs.2,000/-

Additional deposit in multiple of Rs.1,000/-

Some good news for savers

Although a few days old; I missed this story somehow. Nevertheless, there is some bit of good news for Indians who have money in a savings account.

For some twisted reason, banks used to take the minimum balance of your account between the 10th and last day of the month, and calculated interest on that. So, if you had a low balance on one day but a decent amount for the rest of the month – your interest would still be calculated based on the lowest balance.

Example: You have 40,000 from Feb 1st to 25th, but on the 26th, you pay off your car and housing loan EMI, due to which your balance comes down to just 5,000.

The bank will pay you interest for the whole month of February only on Rs. 5,000.

This is pretty unfair, and it is easy to see how this benefits banks.

The RBI has now asked banks to pay interest to savings account holders on a daily basis. This will be effective from the 1st of April 2010, and will ensure that you get money on whatever is in your account, and not just the minimum balance.

This will of course dent the profits of the banks by a bit, – Bank of Baroda (BoB) expects their net interest margin (NIM) to decline by 0.12%, but that is a small price to pay for fairness.

If you are interested in bank savings in a bank, do check out my page on bank interest rates in India.

Photo Credit: Alan Cleaver

6 Things to Watch Out For When Choosing a Savings Account

Finding the right savings account these days isn’t as easy as it used to be. It seems the days are gone in which you could just walk into the local bank, tell them you wanted to open a savings account, plunk your money down, and leave happy with a good interest rate and a free toaster.

At most banks, you now you have the choice of a variety of savings account options, must watch for hidden fees lurking around every corner, and can’t even be sure your bank will be around when you wake up the next morning. And while you might try your best to be selective regarding your bank, and read all the forms regarding the account options, you still might not be happy with the account once you’ve chosen it. Therefore, be wary, open a savings account with your eyes open, and consider the following pitfalls when choosing a savings account.

1. Choosing the First Bank You Find

If you’re truly looking for great savings rates from a reliable bank, you’ll likely have to do a bit of shopping around first. By doing your homework online, reading customer reviews, calling the bank directly, and understanding the terms and conditions regarding various accounts before you sign up for anything, you can save time and costly mistakes.

2. Low Interest Rates

Be on the lookout for poor rates offered by your own bank – always shop around! To ensure you are getting the best deal, consider visiting websites like Bankrate in the USA, Money Supermarket (UK) or Money Compare (AUS) and similar sites where you can compare various banks around the country or online. Websites such as these can give you an idea of which banks are most competitive, and what average rates are looking like in and around the area in which you live. Don’t jump the gun just yet though. Avoiding a poor savings rate isn’t the only pitfall to avoid during your search for a great savings account.

3. Minimum Balances

Having a minimum balance can be costly if you aren’t aware of the associated fees or don’t keep a close eye on your savings account. Ensure that you understand the minimum level of money you must keep in your savings account to keep it over the low balance level and avoid fees. Many of the higher limit savings accounts offer better interest rates, but if you go under that minimum balance level, you may be charged a fee or your interest rate could drop dramatically.

4. Fee Structure and Restrictions

Minimum balance fees aren’t the only charges banks might hit you with regarding your savings account. Costs for cashier’s checks, wire transfers, and other special account services like obtaining a paper statement, can eat up any profits you might be making from your bank accounts. In fact, such fees can greatly reduce or completely negate the interest amounts you are earning on your savings account if you aren’t careful. You must also watch out for penalties regarding the number of transactions allowed on your savings account each month.

5. Bank Accessibility

While the location of your bank might not seem like a big deal when considering where to open your savings account, it can make a difference. If you are not comfortable doing your banking online, driving across town to do business with your bank can cost you more in gas than you are making on savings interest. But the physical location of your bank is not the only issue when it comes to accessibility. When banking online or by phone you must also consider the availability of customer service representatives and similar factors. Being tied up on the phone or having issues with a bank’s website can be costly in time as well as money.

6. Security

It is imperative that your investment is protected by the government. This however does not mean it won’t be a pain to try to get the money from your savings account if your bank fails, but placing your hard earned savings in a bank that doesn’t participate in a government backed protection scheme is just silly after what happened in the credit crunch.

About Your Author

Kris works as a writer for Money Compare, an Australian money comparison website that offers a broad selection of products including a choice of online saving accounts and term deposit accounts that help people save some more money. Apart from his work, Kris enjoys sports and reading books and other blogs online.

ICICI Home Finance Fixed Deposits

ICICI Home Finance Fixed Deposits is a FD scheme run by a subsidiary of ICICI Bank called the ICICI Home Finance Company Limited. So, this is not a fixed deposit by the bank itself, but one offered by its subsidiary.

Here are some things about ICICI Home Finance fixed deposit that will help you evaluate if this is meant for you or not.

  1. Maturity period: There are plans with several maturity periods that range between 1 and 7 years.
  2. Interest Rates: Here are some tables that break it up according to scheme types and maturity periods. These are rates that I saw on November 7, 2009. Please check with the bank or through your online broker to see the prevailing interest rates and make sure you use the most current.

Monthly Income Plan

Tenure Minimum Amount Interest Rate
30 – 30 months 40,000 7.55
40 – 40 months 40,000 7.70
60 – 60 months 40,000 7.95
12 – 23  months 40,000 6.75
24 – 35 months 40,000 7.25
36 – 59 months 40,000 7.50
60 – 84 months 40,000 7.95

Quarterly Income Plan

Tenure Minimum Amount Interest Rate
30 – 30 months 20,000 7.60
40 – 40 months 20,000 7.75
60 – 60 months 20,000 8.00
12 – 23  months 20,000 6.80
24 – 35 months 20,000 7.30
36 – 59 months 20,000 7.55
60 – 84 months 20,000 8.00

Annual Income Plan

Tenure Minimum Amount Interest Rate
30 – 30 months 10,000 7.80
40 – 40 months 10,000 8.00
60 – 60 months 10,000 8.25
12 – 23  months 10,000 7.00
24 – 35 months 10,000 7.50
36 – 59 months 10,000 7.75
60 – 84 months 10,000 8.25

Cumulative Income Plan

Tenure Minimum Amount Interest Rate
30 – 30 months 10,000 7.80
40 – 40 months 10,000 8.00
60 – 60 months 10,000 8.25
12 – 23  months 10,000 7.00
24 – 35 months 10,000 7.50
36 – 59 months 10,000 7.75
60 – 84 months 10,000 8.20

4. Minimum Amount: Minimum amount ranges from Rs. 10,000 to Rs. 40,000, based on the scheme you apply for.

5. Credit Rating: ICICI Home Finance has a credit rating of AAA from CARE for its fixed deposits. This rating indicates that CARE considers it of the best quality offering highest safety for timely servicing and debt obligation.

6. Premature Withdrawal: If you break your ICICI Home Finance FD before the maturity period, there will be some penalty. This will be calculated as follows:

Timing Penalty
Between 3 and 6 months No interest will be payable
Between 6 and 12 months 3% lower than the minimum rate at which public deposits are accepted by ICICI HFC
After 12 months, but before maturity 2% lower than the rate applicable for the completed tenure of deposits

7. ECS Facility: The scheme allows payment of interest through the Electronic Clearing System (ECS) facility in locations where the scheme is available. This is a useful thing to have and you should check if you can avail it where you live or not. If you don’t use the ECS facility, then you will be paid through a cheque or demand draft. These days banks charge for depositing outstation cheques, so you could potentially be charged that.

8. TDS: Tax will be deducted at source according to the applicable rules at the time.

These were some factors to consider if you plan to invest in the ICICI Home Finance Fixed Deposit scheme. I prepared a comparison of fixed deposit rates back in July 2009, and you might be interested in taking a look at that also.