FD Interest Rates offered by Housing Finance Companies

Are you thinking of investing in fixed deposits? Wondering how to take the first step forward? Well, fixed deposits are offered by a range of financial institutions – banks, post offices and Non-banking financial corporations (NBFCs). So, naturally, choices are many. While deciding to park your money, the first thing you must look at is interest rates.

A housing finance company (HFC) is an NBFC engaged in the business of providing financing solutions for the purpose of acquisition and/or development of land & buildings. Since the sector is focused on real estate development which is characterised by high degrees of leverage and delayed cash flows, the intrinsic risk allied to them is relatively higher than that of banks.

So, now that you know what an HFC means, it is time to look at the interest rates they offer on FDs. But first, we must understand the ins and outs of fixed deposits. Read on!

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

What is a Fixed Deposit?

A fixed deposit is a lump sum deposit made with a bank, post office, or NBFC that earns returns at a fixed rate of interest over a predetermined period. The deposit tenure varies from one institution to the other. For HFCs, it is typically between one to five years.

Deposits of this sort usually come with a lock-in period and attract penalties in case of premature withdrawal. If you open an FD account with an HFC, there is mostly a mandatory lock-in period of 3 months. By the virtue of this, a penalty will be levied if you withdraw before this period.

There are two types of FDs based on nature and frequency of interest payout – cumulative and non-cumulative.

In a cumulative FD, the interest is compounded periodically and added to your principal. In other words, compounding ensures that your interest earns more interest. The corpus, consisting of the principal and interest income, is paid to you only at the time of maturity.

In contrast, interest is paid out periodically in the case of non-cumulative FDs. The payout could be monthly, quarterly, half-yearly, or annually, based on your preference. As a result, the returns released on these cannot utilise the benefits of compounding and have a slightly lower effective interest rate.

There are also tax-saver FDs where your investments up to ₹1.5 lakhs annually are tax-deductible under section 80C of the Income Tax Act. However, it must be remembered that, even for these FDs, the interest income is taxable according to your tax bracket.

A fixed deposit programme by an NBFC is usually known as a company or corporate deposit. So, let us now explore some features of a Housing Finance Company fixed deposit scheme:

Maturity Period

You can invest in company FDs for one to five years. 

Interest Payments

The interest rate usually increases with an increase in the tenure of the FD. The frequency of interest payment can be monthly, quarterly, half-yearly or yearly. Alternatively, you can choose a cumulative FD, where the interest is paid on maturity.

Loans

You can take a loan of up to 95% of the FD value by pledging the deposit as collateral. However, this may vary from institution to institution. 

Premature Withdrawal

The penalty period for company deposits is usually three months.

Risk Rating

Leading credit rating agencies rate these companies on a 14-point scale (AAA, AA, BBB, etc.). Hence, choosing an FD programme rated highest on the scale is ideal. All NBFCs must have a Reserve Bank of India or Union Ministry of Corporate Affairs-validated licence to accept deposits. This helps safeguard the investments of depositors.

Unlike bank deposits, the Deposit Insurance and Credit Guarantee Corporation (DICGC) does not extend security towards company deposits.

Minimum and Maximum Amount

The minimum amount for opening an FD account depends on the financial institution of interest; e.g. the minimum deposit amount for the ICICI Home Finance FD is ₹10,000, whereas, in the case of LIC Housing Finance, the minimum deposit required is ₹20,000. However, there is no upper limit on the amount of money you can deposit in an FD.

FD Interest Rates by Housing Companies for 1 year

Let’s look at the FD interest rates offered by the Housing Finance Companies in India.

FD Interest Rates by Housing Companies for 5 Years

Now, here is the FD interest rate offered for 5 years. The interest rate for long-term FDs is higher as it gives the finance company more liquidity to utilise these locked-in funds. 

*LIC Housing Finance offers interest rates of 5.65% on 1-year fixed deposits over ₹ 20 crores. For 5 year-deposits, the interest rate offered is 6.3%.

Tax Benefits

Your interest income from a company deposit above ₹10,000/- is taxable in accordance with your tax bracket. An investment of up to ₹1.5 lakhs in fixed deposits with a tenure of 5 years is exempt from income tax under section 80C of the Income Tax Act, 1961. Hence, in the case of 5-year term deposits, the real return comprises two components – the tax saved and the interest earned.

Final Thoughts

Fixed deposits with Housing Finance Companies offer higher interest rates than those made with banks and post offices. In addition, deposits made with HFCs, HFCs also offer regular benefits like – nomination facilities, tax deductions, additional interest to senior citizens and loans or overdrafts against the deposit.

It is, however, critical to check the credit rating of an HFC deposit programme before investing in it. Schemes rated safe by ICRA, CRISIL and CARE are the most credible. Just ensure that you pick an FD after comparing interest rates offered by various comparable institutions.  

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