Certificate of Deposit vs Bajaj Finance FD: which is better?

Bajaj Finance FD

While seeking fixed income investment opportunities, we come across several possibilities, such as bonds, certificate of deposit, etc. Out of all these, the Certificate of Deposit and fixed deposits are commonly contrasted since both are time savings that give fixed interest rates. Let’s look at the two financial instruments in-depth to gain a holistic understanding of them and determine which one to invest in.

How Fixed deposits are defined?

Fixed deposits are one of the most popular investment alternatives available in India. A fixed deposit account effectively gives a set interest rate on your primary investment. Many financial institutions in India provide this fixed-income security. Numerous investors in India have utilized the advantages of FD rates in India.

An investor makes a lump-sum primary investment that generates interest throughout the deposit term. At maturity, the investor receives the principal and the accumulated interest.

Varying NBFCs and banks offer fixed deposit accounts with different maturities ranging from 7 days to 10 years.

How are Certificates of Deposit Defined?

CDs are financial assets that banks and big organizations provide. They give set interest rates on the invested amount. The fundamental distinction between a CD and a term deposit is the value of the principal amount that may be invested. The former is granted for significant quantities of money (1 lakh or in multiples of 1 lakh afterwards) 

The maturity term of a certificate of deposit varies from 7 days to 1 year if issued by banks. Other financial organizations may issue a CD with a maturity ranging from 1 year to 3 years.

Certificates of Deposits Vs Fixed Deposits

Minimum Investment Amount

It is among the most crucial distinguishing characteristics between CDs and FDs. the minimum investment amount for an FD begins at Rs. 1,000 in various banks, but the amount of funding for a CD is Rs. 1 lakh. Because of the limit on the amount invested, CDs are more popular among corporations than individuals looking to store their excess for the short term and collect interest on the same.

Return on Investment

The interest rate given by banks on FDs varies as per the maturity term of the asset. It ranges from 3.5% p.a to 8% p.a. This implies that if you’ve put your money in a fixed deposit account for three years at a 6% p.a. interest rate, you will get the same interest rate for the whole maturity time, regardless of the changes in the interest rates in the broader market. The interest rate on CDs issued by organizations generally provides more excellent interest rates than those given by commercial banks. So, if one seeks to take just a little risk to generate significant returns, s/he might opt to invest in CDs.

Investment Horizon

FDs are a popular saving instrument for the long term, with the most significant maturity length of 10 years, and have reasonable FD rates in India. However, CDs are suitable for short-term investments since those issued by the banks have the most significant maturity length of 1 year. The maturity length of CDs issued by financial institutions spans from 1 year to 3 years.

Collateral for Loan

Another reason investing in term deposits is popular in India is that investors may access loans against their deposits in FD accounts. One may take a loan up to 75% of their FD assets. On the other side, this advantage is not applicable in the case of CDs. Since Certificate of deposits are transferrable, they effectively have no lock-in duration, which banks do not view as considerable security for providing the loan.

Which one to select?

Both CDs and Fixed deposits have their share of pros and downsides. Selecting which to invest relies on the amount invested, the horizon, and the risk attitude. If you have a short-term investment plan, can tolerate a little risk and are qualified to acquire a CD, you may invest in a CD to fulfil your short-term financial objectives. However, if you desire to invest for a long time and get constant income, you might think about investing in an FD.