Bonds and fixed deposits are two different ways of investing money with financial instruments. Bond is an unsecured bond. In fact, it is the bonds that are not backed by physical assets or collateral. Meanwhile, a fixed Deposit is an agreement with the Bank where a depositor places money in the Bank and gets a regular fixed profit.
What is convertible bond?
Sometimes bonds are issued with provisions that allow the holder to exchange the bonds for shares of the company. Non-convertible bonds are unsecured bonds that cannot be converted to company equity or stock. Non-convertible bonds usually have higher interest rates than convertible debentures.
All bonds have specific features. First, a target document is drafted, which is an agreement between the issuing Corporation and the trust, which manages the investors ‘ interest. Further, the coupon rate will be decided that the interest rate that the company pays the bondholder or investor. This rate can be fixed or floating depending on the credit rating company or the credit rating of the bonds.
For non-convertible bonds, the maturity date is also an important feature. This date determines when the issuing company is obliged to pay the bondholders. The most common form of repayment is called deliverance from the capital, in which the issuing company is a lump sum payment on the maturity date.
What is fixed Deposit?
When the investor places money on fixed Deposit, the amount of profit or interest paid on an investment is fixed and will not increase or decrease at any time, regardless of fluctuations in interest rates. The interest rate is usually offered on term deposits is low compared to other investment forms because they are low risk investments.
Time deposits typically have maturities from two weeks to five years. Term deposits can not be redeemed early. In other words, money cannot be withdrawn for any reason prior to the time-period for the Deposit has expired. If the money is withdrawn early, then the Bank may charge an early withdrawal penalty or fee.
A very common example of term Deposit account is a certificate of Deposit (CD).
(See our certificates of Deposit Tutorial.)