Looking beyond bank FDs? Company FDs offer up to 9.1% interest; Here's what investors should know

With bank fixed deposit (FD) rates largely capped at around 7% for general investors, company fixed deposits issued by non-banking financial companies (NBFCs) and housing finance companies (HFCs) are attracting attention by offering significantly higher returns, in some cases exceeding 9% per annum.

Fixed deposits continue to remain one of the most popular investment options for risk-averse investors seeking predictable returns and capital protection. Most leading banks currently offer FD rates of up to 7% for regular depositors, while senior citizens typically receive an additional 50 basis points. However, investors willing to take on slightly higher risk can potentially earn better returns through corporate fixed deposits.

Higher returns than bank FDs

Corporate FDs are deposits accepted by NBFCs and HFCs and generally offer higher interest rates than those available on bank deposits.

Among the highest-paying company FDs currently available, Muthoot Capital offers interest rates ranging from 7.9% to 9.1% per annum. Shriram Finance offers between 7% and 7.6%, while HUDCO provides returns of 7% to 7.25%.

Other major issuers include Mahindra Finance, offering up to 7%, Sundaram Finance up to 7%, LIC Housing Finance up to 6.9%, PNB Housing Finance up to 6.9%, and Bajaj Finance up to 6.95%.

The higher rates can make a meaningful difference for investors looking to generate steady income or build long-term savings through compounding.

Ratings matter

Unlike bank deposits, company FDs do not enjoy insurance protection from the Deposit Insurance and Credit Guarantee Corporation (DICGC), a subsidiary of the Reserve Bank of India.

This makes credit quality a critical factor when selecting a corporate FD. Investors should carefully evaluate ratings assigned by agencies such as CRISIL, ICRA and CARE before investing.

Highly rated deposits, such as those carrying AAA or FAAA ratings, are generally considered to have a lower probability of default on interest and principal repayments. However, ratings are assessments and do not eliminate risk entirely.

Flexible payout options

One of the attractions of corporate FDs is the flexibility they offer. Investors can choose from monthly, quarterly, half-yearly or annual interest payout options depending on their cash-flow needs.

Many issuers also offer cumulative FDs, where interest is reinvested rather than paid out periodically. This allows investors to benefit from compounding and potentially earn higher overall returns over the deposit tenure.

Additionally, several NBFCs and HFCs allow investors to take loans against their deposits, providing liquidity without requiring premature withdrawal.

Risks investors should consider

While higher returns can be attractive, corporate FDs carry greater risk than bank deposits. Since they are not covered under DICGC insurance, investors could face losses if the issuing company experiences financial distress.

Premature withdrawal may also attract penalties, and some deposits come with lock-in periods during which withdrawals are not permitted.

Financial planners suggest that investors seeking higher yields should prioritize highly rated issuers, diversify across institutions and avoid allocating a disproportionate share of their savings to any single corporate FD. For conservative investors, the trade-off between higher returns and additional credit risk remains the key consideration.