Why You Should Move Away From Bank Deposits to Corporate Deposits?

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    Bank deposits rates are falling and falling real fast. Interest rates in top private sector banks have fallen under 9 per cent and a few PSU banks are offering just about 9 per cent. Even if you take into consideration the quarterly compounding their yields are nowhere near company fixed deposits.

    Why You Should Move Away From Bank Deposits to Corporate Deposits?
    Company deposits can offer you interest rates of as much as 10.25 per cent, making them far more attractive. In fact, a difference in excess of 1 per cent makes corporate deposits far more attractive.

    For example, a government backed fixed deposit like Kerala Road Transport Development Finance Corporation is offering individuals an interest rate of 10.25 per cent, if the deposit is above Rs 25 lakhs and 10 per cent, if the deposit is under Rs 25 lakhs. Now, this a government of Kerala backed deposit and hence even safer then some banks.

    Another fixed deposit from Mahindra and Mahindra offers an interest rate of 9.75 per cent for three years. If you discuss with your broker he might be willing to share a part of his commission with you and thus pushing up your yields. Now, this again is a AAA rated company deposit and is highly secure.

    Clearly, you are likely to get at least a 100 per centage point difference or one per cent on your deposits at corporates.

    It's important to note that company deposits are not as secure as bank deposits and therefore look for the ratings and the pedigree. Like mentioned above the KTDFC deposit is backed by the government of Kerala and is very safe. They are also known to provide good service and you can call the company for details.

    As interest rates in the economy you are likely to get much lower interest rates in probably a few months from now. What we suggest is that you park money for the longer term, particularly say for three years and above. This would help you hedge against any declining interest rates in the economy.


    Read more about: bank deposits company deposits
    Story first published: Tuesday, December 16, 2014, 10:11 [IST]
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