Bonds vs FD: which is better?

Compare the 2 on yield after tax, credit risk and how easily you can get your money back, not on the headline rate.

Does tax change the answer?

Mostly not. Bond and NCD interest is taxed at your slab rate, the same as FD interest, and both face TDS: interest on listed debentures lost its TDS exemption from 1st Apr 2023 (EY). They differ only if you sell a bond before maturity: a listed bond sold after more than 12 months pays 12.5% long-term capital gains tax without indexation, and unlisted bonds are taxed at slab whatever the holding period, under rules in force since 23rd Jul 2024 (Business Standard). An FD has no market price, so it has no capital gain or loss. See how bond interest is taxed.

At the 30% slab, before surcharge and cess	Pre-tax yield	Post-tax yield
FD at 7.5%	7.5%	5.25%
Bond at 10%	10%	7%
Bond at 12%	12%	8.4%

The extra 1.75 or 3.15 points after tax is what you are paid for the risks below. I'm in the 30% slab: are 10% to 12% bonds worth it? works through more cases.

What risk am I taking for the extra yield?

A bank FD is a deposit covered by DICGC deposit insurance up to a limit per depositor per bank (DICGC). A corporate bond is a loan to one company with no such cover, and SEBI makes every online bond platform's ads carry a warning that debt securities face the risk of delay or default (SEBI NCS Master Circular). Defaults happen: TruCap Finance NCDs sold to retail investors through bond platforms went to CARE D on 18th Jul 2025 and were repaid about 10 weeks late with penal interest (CARE, Catalyst Trusteeship). The rating, its direction, whether the bond is secured and where it ranks for repayment matter more than the coupon. See are corporate bonds safe.

Many bond apps also sell FDs from small finance banks and NBFCs. On 17th Oct 2026 GoldenPi and Jiraaf listed small finance bank FDs at up to 8.5%, and Shriram Finance and Bajaj Finance FDs at 8.4% and 8.15% (GoldenPi, Jiraaf). Shriram Finance and Bajaj Finance are NBFCs, and DICGC insurance covers bank deposits only.

Which is easier to exit?

A bank FD can usually be broken early on the bank's terms. A bond has to be sold to a buyer, and corporate bond trading is thin: SEBI's chairman cited a secondary turnover ratio of about 0.3 in May 2026 (Outlook Money). Some platforms run their own sell features at a cost, such as Grip's 0.25% charge after about 2 months of holding (Grip). See can I sell a bond before maturity.

What about government bonds?

Government paper removes most of the credit question. RBI Floating Rate Savings Bonds pay 8.05% for 1st Jul to 31st Dec 2026, reset every 6 months, run for 7 years, cannot be traded, and their interest is taxable with TDS (RBI rate, RBI terms). G-secs, SDLs and T-bills are taxed at slab like an FD but can be sold on the exchange, though their prices move with interest rates before maturity. See how to buy T-bills.