Which one is provide better FD Rates – Bank or NBFC?

Fixed deposits, often known as FDs, are types of financial instruments that provide investors with a secure and risk-free way to build wealth through the accumulation of compound interest. Many people are unaware of the fact that FDs are made available not only by banks but also by various non-banking financial institutions.

Fixed Deposit is a safe and popular investment option that guarantees constant interest rates, offers special rates for senior citizens, offers multiple interest payment options, and is not subject to market risks. FD accounts can be opened in a bank because they are the most secure place. FDs offered by banks have lower risks than any other comparable alternative. As a result, your money is secured; if the bank completely shuts down its operations, your security deposit amount will be paid as compensation.

An NBFC fixed deposit is an investment option offered by various non-banking financial institutions. According to the Companies Act, a Non-Banking Financial Company has a primary objective of leasing, arranging loans or investments, hire-purchase insurance, and receiving deposits by chit funds in a lump sum or arrangement of installments under any scheme.

Which investment option provides high FD Rates – Bank or NBFC?

It is advisable to invest with NBFC if you are doing FD rates comparison between Bank FD rates and NBFC FD rates. In order to gain higher interest rates on your investments, you can invest your hard earn money in NBFCs. NBFCs offer a 1% to 2% interest rate hike when compared to banks, so it is a good thing to invest in NBFC offering higher rate of interest.

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Difference between Bank FD vs NBFC FD


Usually, bank deposit schemes with varying tenures are available that range between 7 days and up to 10 years. In contrast, in the NBFCs, the deposit period is slightly different. In most cases, the minimum tenure starts at 12 months, and the maximum tenure is close to 5 years.

Security for the amount invested

When you deposit money in a bank FD after doing FD rates comparison, the amount you deposit is insured to a maximum of INR 5 lakhs. When the bank winds up its operations, the bank will refund you up to INR 5 lakhs. The money you deposit with a bank through a fixed deposit is safe and secure. There is no need to worry about your investments. An NBFC provides no such security for an FD. The insurance cover of INR 5 lakhs is available only for bank deposits. It is important to note that NBFC FDs are risky in any way.

Interest rate

After FD rates comparison, you can observe that fixed deposits offered by banks generally have lower interest rates than those offered by NBFC. The interest rate might begin at 2.50% and rise to 6.5% or 7% in the future in bank fixed deposit. However, fixed deposits offered by NBFCs have attractive interest rates, starting at 7% and increasing to 8.50% and even higher than that.

Tax benefits

As a result of investing in a 5-year deposit plan offered by a bank, the amount you invest in FD after doing FD rates comparison would be allowed as a deduction from your taxable income. A deduction of up to INR 1.5 lakhs can be considered under Section 80C. In contrast, senior citizens can take advantage of interest income up to Rs 50,000 in tax-free Section 80TTB of the Income Tax Act, 1961. There is no tax benefit on the interest you earn when investing in an NBFC FD.

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Final Words

A bank fixed deposit offers good tax benefits. In contrast, an NBFC FD is a great choice because of its higher interest rate, cumulative interest, and tax benefits. If your income is unstable and your expenses are higher, do not avail of the NBFC FD since they have a higher deposit penalty for premature withdrawals. Before investing in Bank FD or NBFC FD. You should perform FD rates comparison and compare the maturity amount by using fixed deposit rates calculator tool online to make better decision.

Bank fixed deposits are the best choice because they offer a very long tenure, and when the tenure is long, it is possible to expect long-term interest. In contrast, NBFC FDs are only available for up to five years. The presence of both fixed deposits is the best of both, but it is essential to choose the right fixed deposit based on the investor’s goals.