NBFCs vs Bank FD rates: Here's which one should you opt for

 

 

During the COVID-19 pandemic as interest rates were cut, customers turned to FDs offered by NBFCs as their rates were better than those at banks. Both NBFCs and banks are regulated by the RBI. However, there are certain pitfalls in investing in NBFCs. For example, NBFCs levy higher penalties for premature termination of FDs than banks. In such cases, the interest rate payable is 3 percent lower than the lowest interest rate on the application form if termination is done within a year and 2 percent of the applicable rate if the FD is terminated after 1 year. Hence, if a customer has invested in an FD with an interest rate of 7 percent and terminates it after a year, the customer will get 5 percent interest rate instead of the earlier 7 percent. Banks, on the other hand, charge only 1 percent penalty for early termination.

Customers should also note that NBFCs do not come under the Rs 5 lakh guarantee provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC).