Choose your FD scheme: Corporate FDs offer higher returns, but are they worth the extra risk?

Fixed deposits continue to remain one of the preferred investment choices for conservative savers seeking stable returns and capital protection. While traditional bank FDs still dominate household savings, a growing number of investors are exploring corporate fixed deposits (FDs) offered by Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) in search of higher returns. Corporate FDs typically offer better yields than bank deposits, particularly compared with large public and private sector banks.

However, the higher return potential comes with a key trade-off: higher risk.

Unlike scheduled bank fixed deposits, corporate FDs do not enjoy protection under the Deposit Insurance and Credit Guarantee Corporation (DICGC) framework. Bank deposits are insured up to ₹5 lakh per depositor, but corporate deposits do not receive this safety net.

This difference has made financial planners repeatedly advise investors to focus on credit quality before investing.

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Why corporate FDs attract investors

Corporate FDs are designed similarly to traditional FDs but often provide higher interest rates because companies use deposits as a funding source.

As of May 2026, several corporate deposit schemes were offering rates notably above many bank FDs. According to available data, Muthoot Capital Services offers up to 8.95%, while Manipal Housing Finance Syndicate offers rates of 8.25% for select tenures.

Other major players including Shriram Finance, Mahindra Finance, LIC Housing Finance, PNB Housing Finance and ICICI Home Finance also offer varying rates depending on tenure and investor category.

Senior citizens frequently receive additional interest benefits ranging from 0.20% to 0.50% over standard rates.

Credit ratings become critical

Because these deposits are not government-insured, ratings assigned by agencies such as CRISIL, ICRA and CARE become an important indicator of risk. Higher-rated deposits, particularly AAA-rated products, generally indicate stronger repayment capacity and lower default risk.

As ratings move lower, the probability of repayment stress may increase.

Experts often advise investors not to chase returns alone and to evaluate the issuing company’s financial strength.

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Flexible features, but conditions apply

Corporate FDs provide multiple payout options including monthly, quarterly, half-yearly and annual interest payments. Investors can also choose cumulative plans, where interest gets reinvested and benefits from compounding.

Many companies also allow premature withdrawals and loans against deposits, although penalties may apply. Some deposits may carry lock-in periods of around three months, while loan facilities may attract interest rates higher than prevailing FD rates.

Interest income earned from corporate deposits remains fully taxable according to the investor’s income slab.

For investors with short-term goals, such as travel plans or planned purchases, corporate FDs can offer an attractive combination of higher returns and fixed income. But unlike bank deposits, selecting the right product requires careful attention to risk, ratings and issuer quality rather than headline interest rates alone.

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