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Investment Bonds Vs Fixed Deposits: Which Investment is Good? Research Team | Posted On Tuesday, October 29,2019, 02:48 PM

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Investment Bonds Vs Fixed Deposits: Which Investment is Good?



Investment Bonds Vs Fixed Deposits: Which Investment is Good?

Many investors face the dilemma of choosing between fixed deposits and investment bonds. When you are two-minded about such investments, you must not take any decision in a hurry. Remember to carefully evaluate the benefits and features of both these investment tools. The success of any of the investment options depends on your financial goals. To help you understand better, here is a summary of both the investment options:

What are Investment Bonds and Fixed Deposits?

Fixed deposits are an investment option that involves saving a lump sum amount for a fixed tenure at a fixed interest rate. Investment bonds also involve saving a fixed amount for a fixed time period. But the rates of interest in FD are much higher than that of investment bonds. However, investment bonds are more tax-efficient than fixed deposits.

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Investment Bonds and Fixed Deposit Interest Rates:

The rate of interest is a crucial factor while evaluating any investment option. You will be able to fulfil your financial goals based on the returns component of your investment. if you are only looking for better returns or regular income then you must choose an FD that pay interest on monthly, quarterly or annual basis. But if you just want your wealth to grow, you can opt for bonds where the interest earned is reinvested and paid at maturity.

See Also: How To Choose the Best FD?

Benefits of Bonds and Fixed Deposits:

Benefits of investing in fixed deposits:

  • Fixed deposits provide risk-free growth of your investments as its returns are not dependent on share market fluctuations.
  • These are ideal investment options for retirees, who also get the benefit of higher interest rates.
  • FDs are issued by institutions with high credit ratings thus making them a reliable investment option
  • You can avail loans against FD to meet your urgent cash requirements.
  • You can earn more than your savings account due to the compounding of interest.
  • You can choose the frequency of returns and the tenure of your investment.
  • You can deposit a lump sum amount and use the returns to finance your short-term or long-term goals like financing your child’s education or purchasing an asset.

See Also: Fixed Deposit Vs Fixed Maturity Plan

Benefits of Investing in Bonds:

  • The investments bonds provide an avenue for capital appreciation so that the investor can get better returns.
  • The rate of interest on bonds is lower than that offered by fixed deposits.
  • The returns on investment bonds are subjected to TDS and taxes.  This means you can keep most of your income from the interest accrued without having to plan for tax deductions.
  • You do not have the flexibility to choose the frequency of your returns. There is a fixed time on which the returns will be credited to your account.
  • Bonds do not offer absolute safety, unlike fixed deposits. In case the bond goes unpaid, you only have the rights over the securities submitted as collateral.

Invest in Bonds vs. Fixed Deposits:


Fixed Deposit

Investment Bonds

Rate of returns

FD provides good returns on maturity provided the money is locked in for a fixed period. The rate of interest is fixed and is defined at the begging of the tenure. Hence you get fixed returns.


Bonds also provide a payout at predefined periodicities. However, Bonds offer the additional scope of earning Capital Gains, as Bond prices fluctuate either based on changes in market interest rates or due to changes in the creditworthiness of the issuer


Fixed deposits are unsecured investment options. Though are very fewer chances of losing money in FD, investors may end up in losses in the banks liquidates or merges with other banks

Most of the bonds are secure as they are backed by physical assets that investors can claim if the company fails to repay.


Fixed deposits have a fixed lock-in period. Deposits can be withdrawn prematurely by paying a penalty.

Bonds can be traded on exchanges and is, therefore, more liquid when compared to fixed deposits.

Investment Type

The Fixed deposits have various non-cumulative options for interest payout namely the monthly, quarterly, annually as well as the cumulative interest payment option.


The investment bonds pay interest only on a cumulative basis where the interest is paid annually.  

Withdrawal cost

Premature withdrawals on FDs attract a penalty of 1-2% of the interest payout.


Since bonds are tradable you can exit from these prematurely.

Tax deductions

 TDS on FD is applicable only if the interest income exceeds beyond Rs. 10,000 per annum. Interest income on FDs is subject to taxation as per the existing tax slabs.


The listed bonds in DEMAT form are not subjected to TDS on the interest payout.

Interest income from bonds is taxable according to the existing tax slabs. However, tax-free bonds issued by the government are fully exempt from taxes.

If you are looking for short-term investment tools then investment bonds are the best options. But bond trading is not everyone’s cup of tea. So FD investments are perfect investment instruments for you if you are looking for fixed returns or a periodic interest income. 

See Also: Benefits of Fixed Deposit in India

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