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When it comes to savings, a fixed deposit can be a safe instrument that can provide you with returns as well as convenience. In India, mutual funds, savings accounts, fixed deposits, etc., have been preferred and popular financial instruments. Fixed deposits, in particular, have been used by people from all kinds of economic backgrounds due to their accessibility and simplicity. If you too want to open a fixed deposit, you can do so in two ways – one with a bank and the other with an NBFC or Non-banking financial company. Read on to know which of these is better and what are the differences between the two:
Difference between a bank FD and an NBFC FD
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Points of difference
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Bank fixed deposit
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NBFC fixed deposit
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Meaning
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A bank fixed deposit is offered by a registered bank.
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An NBFC fixed deposit is offered by a Non-banking financial company. NBFCs are companies that do not have a full banking license but are registered under the Companies Act, 1956.
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Safety
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A bank fixed deposit may be safer. Banks offer an insurance cover of up to a total of Rs. 5 lakhs for the amount deposited.
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An NBFC fixed deposit may not be as secure as there is no insurance cover. If the company goes bankrupt, you may risk losing your money.
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Rate of interest
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Banks may offer comparatively lower interest rates than NBFCs. Depending on the bank you choose, you can get a rate of interest varying between 2.5% and 7%. Moreover, banks offer higher interest rates to senior citizens.
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NBFCs can provide higher rates of interest like mutual funds. NBFCs offer interest rates starting from 7% and going up to 8.5%. Similar to banks, NBFCs also offer higher interest rates to senior citizens.
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Tenure
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Bank fixed deposits can offer a minimum tenure of 7 days and a maximum of 10 years. However, the precise term can differ from bank to bank.
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In the case of NBFCs, the minimum tenure can start from a year and can go up to 5 years. Different NBFCs may have different tenures, so it is best to check them before you select one.
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Tax benefits
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A bank fixed deposit scheme of 5 years offers a tax deduction of up to Rs. 1.5 lakhs under Section 80C of the Income Tax Act, 1961.
However, the interest earned on the deposit is taxable as per the income tax slab you fall into.
But senior citizens can claim tax-free interest of up to Rs. 50,000 under Section 80TTB of the Income Tax Act, 1961.
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There are no tax benefits on NBFCs deposit schemes.
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So, what should you choose?
If you are looking for tax benefits and lower risk, a bank fixed deposit may be better. However, if you want to earn higher returns, then opening a fixed deposit with an NBFC may offer more benefits. Regardless of what you choose, make sure to have a diversified portfolio full of mutual funds, bonds, cash, etc., along with deposit schemes for better financial protection.
To sum it up
You can use the Tata Capital Moneyfy App to manage all your savings and investments. Right from fixed deposits to mutual funds and more, the Moneyfy App can help you simplify all your finances.
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