How it is calculated
FD maturity = P × (1 + r/4)^(4n) Bond total = P + (P × c × n)- P : amount invested; n, years; r, FD rate; c, bond coupon rate
- FD interest compounds, conventionally quarterly at Indian banks
- Bond coupons are paid out, so they do not compound unless you reinvest them
- Both are then taxed at your slab rate
A worked example
- 1₹5,00,000 for 3 years, comparing a 7.25% FD against a 10.5% AA-rated NCD, in the 30% slab.
- 2FD: quarterly compounding takes it to ₹6,20,258, ₹1,20,258 of interest.
- 3NCD: coupons paid out total ₹1,57,500, with the ₹5,00,000 principal returned.
- 4After 30% tax: ₹84,181 from the FD against ₹1,10,250 from the NCD.
The NCD leaves you about ₹26,000 better off over three years. That is the price the market is paying you to take on one company's credit risk instead of a bank's, with no DICGC cover and much thinner liquidity. Whether that trade is worth it is a judgement, not a calculation, but at least it is now the actual question.
The comparison most sites get wrong
Two errors turn up constantly. The first is comparing a compounding FD against a coupon-paying bond as if both grow the same way. FD interest compounds quarterly inside the deposit; bond coupons land in your account and compound only if you actively reinvest them. Ignoring this flatters the bond.
The second is comparing pre-tax rates when the two are taxed identically anyway. Both FD interest and bond interest are taxed at slab rate, so the ranking rarely changes, but the size of the gap does, and the gap is what determines whether the extra risk is worth taking.
This calculator makes both adjustments. What it cannot do is price the risk difference, which is the entire substance of the decision.
What the extra yield is actually buying
Deposit insurance. DICGC covers bank deposits up to ₹5 lakh per depositor per bank, principal and interest combined. A corporate bond has no equivalent, if the issuer fails, you are a creditor in an insolvency process with an uncertain recovery after a long wait.
Liquidity. An FD can be broken, usually for a small penalty on the rate. A thinly traded NCD may take days to sell and may only clear at a discount, or not clear in full size at all.
Certainty. An FD's outcome is known at the outset. A bond held to maturity depends on the issuer staying solvent for the full term, and a bond sold early depends on where rates and credit spreads sit that day.
When each one is the right answer
An FD is the better instrument for money you may need at short notice, for amounts within the ₹5 lakh insured limit, and for anyone who would not sleep through a downgrade headline about the issuer.
A bond earns its place for money you can genuinely leave until maturity, in an amount large enough that the yield difference is material, and where you have actually looked at the issuer rather than only at the coupon.
The useful discipline: if the yield gap does not compensate you for the risk gap, take the FD. A few thousand rupees of extra interest is a poor trade against a low but real chance of a large loss of principal.
Frequently asked questions
Are corporate bonds safer than fixed deposits?+
No. Bank fixed deposits are insured by DICGC up to ₹5 lakh per depositor per bank and are backed by a regulated bank; a corporate bond is a claim on a single company with no insurance. Bonds compensate for that with a higher yield. The extra return is the payment for the extra risk, not evidence that the risk is absent.
Why do bonds pay more than FDs?+
Because they must, to attract money away from an insured alternative. The gap reflects the issuer's credit quality, the tenure, and how easily the bond can be sold. A wider gap means the market sees more risk, so an unusually generous spread is a warning rather than a bargain.
Is FD interest taxed differently from bond interest?+
No, both are taxed at your income slab rate as Income from Other Sources. TDS mechanics differ slightly, but the final liability is computed the same way, which is what makes a post-tax comparison between them straightforward.
Should I split money between FDs and bonds?+
Splitting is the common approach: enough in insured deposits to cover near-term needs and emergencies, with bonds used for money that can be committed for the full term. Spreading bond money across several issuers matters too, since the loss from a single default is what does real damage to a portfolio.