Bank Guarantee is a form of promise by the bank on behalf of the buyer and in favour of the seller who provides services on goods or credit. Here the bank is known as surety, the buyer as an applicant, and the seller as beneficiary. The banks assure the seller, that bank will pay the due amount if the applicant makes to fail payment.
Fixed Deposit is a form of term deposit where a fixed amount of money is deposited in the bank for a fixed period and is repayable at a future date, along with the interest earned. Fixed deposit is offered both by banks and non-banking financial companies.
Bank Guarantee vs Fixed Deposit
The main difference between Bank Guarantee and a Fixed deposit is that in a bank guarantee, the bank pays money on behalf of the applicant, and in Fixed Deposit, the bank guarantees deposit insurance to the applicant for a fixed period.
Comparison Table Between Bank Guarantee and Fixed Deposit (in Tabular Form)
| Parameter of Comparison | Bank Guarantee | Fixed Deposit |
|---|---|---|
| Concept | Bank Guarantee is a promise of payment by the bank to the seller on behalf of the applicant. | A scheme in which money is deposited in the bank for a fixed period. |
| Objectives | It allows the individuals, to acquire goods, buy equipment’s and take loans. | The objective is to facilitate investors, then deploy idle savings and earn interest. |
| Payment | Payment is made on the failure of commitment. | Payment is fixed for a particular period but is repayable at a future date. |
| Suitability | Bank Guarantee is especially suitable for government contracts. | Fixed Deposit is especially suitable for individuals who are doing jobs, business, or even investors. |
| Advantage | Based on bank guarantee, security is provided to the applicants to make the payments for goods and services on later stages. | It enables the depositor to earn higher returns on his funds. |
What is Bank Guarantee?
Bank Guarantee is a form of promise by the bank on behalf of the buyer and in favour of the seller who provides services on goods or credit. Here the bank is known as surety, the buyer as an applicant, and the seller as beneficiary. The banks assure the seller, that bank will pay the due amount if the applicant makes to fail payment.
Based on bank guarantee, security is provided to the applicants to make the payments for goods and services on later stages. The liability if the bank guarantee is of secondary level. Bank Guarantee is only offered by the banks and no other firm or organization.
The risk factor, here, is more for merchants and less for the banks. This becomes active only when the applicant is not able to an amount of money to a seller.
How Do Bank Guarantees Work?
- An applicant demands a loan from a seller.
- While applying for the loan, the applicant and the seller decides that a bank guarantee is important.
- Applicant than requests the bank to give a bank guarantee for the loan taken for the seller.
- Then, the bank guarantee is provided in the favour of the seller who provides services on goods or credit and a guarantee of the applicant/buyer.
There are two types of bank guarantee:
- Financial Guarantee
- Performance Guarantee
What is Fixed Deposit?
Fixed Deposit is a form of term deposit where a fixed amount of money is deposited in the bank for a fixed period and is repayable at a future date, along with the interest earned.
A Fixed Deposit account is called so because here, the depositor has to invest the money only once in a whole sum when the fixed account is opened and it is given back along with interest once the fixed time is over. Fixed Deposit just requires a single time investment.
A fixed deposit produces higher returns. Its Tenure ranges from 6 days to 11 years. If we invest in Fixed Deposit we can save and earn money both at the same time. Fixed Deposit is especially suitable for individuals who are doing jobs, businesses, or even investors. Fixed deposit is offered both by banks and non-banking financial companies.
Main Differences Between Bank Guarantee and Fixed Deposit
- Bank Guarantee is a form of promise by the bank on behalf of the buyer and in favour of the seller who provides services on goods or credit whereas Fixed Deposit is a form of term deposit where a fixed amount of money is deposited in the bank for a fixed period and is repayable at a future date, along with the interest earned.
- The objective of Bank Guarantee is to allow the individuals, to acquire goods, buy equipment’s and take loans whereas the objective of the Fixed Deposit is to facilitate investors, then deploy idle savings and earn interest.
- Bank Guarantee enables individuals to postpone payment for goods or services obtained based on the security supplied by the bank guarantee whereas Fixed Deposit enables the depositor to earn higher returns on his funds.
- There is no need of any kind for investment in Bank Guarantee but Fixed Deposit requires a single time investment.
- Bank Guarantee is only offered by the banks and no other firm or organization whereas a Fixed deposit is offered both by banks and non-banking financial companies.
Conclusion
There are many differences between the Bank Guarantee and Fixed Deposit.
We can see now that Bank Guarantee is used to fulfil business commitments where the bank gives the guarantee to the seller which are required for business settlements and important works and in Fixed Deposit, one needs to deposit the money for a fixed amount of time and when the tenure gets over, the applicant can withdraw the money from his/her account.
There is no need for any kind of investment in Bank Guarantee but Fixed Deposit requires a single time investment.
References
- https://mpra.ub.uni-muenchen.de/id/eprint/35557
- https://hrcak.srce.hr/67023