A deposit is a loan you make to an institution. With a bank fixed deposit, the borrower is a bank; with a corporate deposit, it is a non-banking finance company, a housing finance company or another company permitted to raise deposits. The interest you are offered reflects, in part, how much risk you take in lending to them.
Who you are lending to
Banks — scheduled commercial banks, small finance banks and co-operative banks — are regulated by the RBI, and accepting deposits is central to their business. Deposits with insured banks are covered by the DICGC, the RBI's wholly owned deposit insurance subsidiary.
NBFCs and housing finance companies are also regulated by the RBI, but only a limited number are permitted to accept public deposits, and those must meet specific conditions, including credit-rating requirements. Their deposits are not covered by deposit insurance.
Other companies can raise deposits in certain cases under company law, with their own conditions and disclosures.
How deposit insurance works
DICGC cover applies per depositor, per bank, across all your deposits with that bank — savings, current, fixed and recurring — and includes principal and interest, up to ₹5 lakh in total. Deposits in different branches of the same bank are added together; deposits in different banks are covered separately. Revising the limit has been under discussion, so check the current figure on the DICGC website.
If you hold more than the covered amount at one bank, the excess depends on that bank's own financial strength.
What the extra rate is paying for
Suppose, for illustration, a bank offers 7% on a three-year deposit and a corporate issuer offers 8.5%. The extra 1.5 percentage points is not a free improvement. It compensates you for:
- Credit risk: the chance the issuer delays or misses payments.
- No deposit insurance: nothing stands behind the deposit except the issuer.
- Liquidity: premature withdrawal is often more restricted — some corporate deposits do not allow it for an initial period, and penalties can be higher.
Whether that compensation is adequate depends on the issuer's strength and on your ability to absorb a problem if one occurs.
Reading the credit rating
Corporate and NBFC deposits are usually rated by SEBI-registered credit rating agencies. Higher ratings indicate a lower assessed risk of default.
- Treat the rating as a starting point, not a verdict. It is an opinion based on available information.
- Check the outlook — stable, positive or negative — and any "watch" status, which can signal a change.
- Ratings can be lowered, sometimes quickly when conditions change. Keep an eye on them after you invest.
- A rating describes the issuer's ability to pay. It says nothing about whether the deposit suits your plan.
Our credit ratings explainer covers the scale in detail.
Side by side
| Bank FD | Corporate or NBFC deposit | |
|---|---|---|
| Issuer regulated by | RBI | RBI (NBFCs, HFCs) or company law |
| Deposit insurance | Up to ₹5 lakh per depositor per bank | None |
| Typical rate | Lower | Higher, varying with issuer risk |
| Credit rating | Rarely the deciding factor for deposits | Essential to check |
| Premature withdrawal | Usually allowed, with reduced interest or a penalty | Often restricted early on; terms vary |
| Interest taxation | Slab rate | Slab rate |
| TDS | Above the annual threshold | Applies under the relevant rules; thresholds can differ from banks' |
Using corporate deposits sensibly
- Keep them to a share of your fixed-income money that you could afford to have delayed.
- Prefer issuers with strong ratings and a long, transparent record.
- Spread across issuers rather than concentrating in one.
- Match the tenure to your needs; avoid locking up money you may need.
- Read the terms on premature withdrawal and renewal before you sign.
- Check that an NBFC is permitted to accept public deposits; the RBI publishes this information.
Questions to ask about any corporate deposit
- What does the issuer do, and how long has it been raising deposits?
- What is its current rating and outlook, and has either changed recently?
- Is it permitted to accept public deposits, and does the offer document say so?
- Can I withdraw early, from when, and at what cost?
- What share of my fixed-income money would this single issuer represent?
If any answer is unclear, that is itself useful information.
Where each fits
For emergency money and near-term goals, insured bank deposits are usually the more appropriate home — see emergency fund first. Corporate deposits may have a place in the fixed-income part of a larger, diversified plan, sized so that a problem with one issuer would be a setback rather than a crisis. The FD Calculator lets you compare maturity values at different hypothetical rates, so you can see exactly how much extra the additional risk is buying.