What is the difference between nonconvertible debentures and fixed deposits?

By Chizoba Morah AAA

Debentures and fixed deposits are two different ways of investing money. A debenture is an unsecured bond. Essentially, it is a bond that is not backed by a physical asset or collateral. Sometimes, debentures are issued with provisions that allow the holder to exchange the debenture for company stock. Nonconvertible debentures are unsecured bonds that cannot be converted to company equity or stock. Nonconvertible debentures usually have higher interest rates than convertible debentures.

A fixed deposit is an arrangement with a bank where a depositor places money in the bank and is paid a regular fixed profit. The amount of profit or interest paid on the investment is fixed and will not increase or decrease at any time regardless of fluctuations in interest rate. The interest rate usually offered by fixed deposits is low compared to other investment forms because they are low-risk investments. Fixed deposits typically have maturities from two weeks to five years. Fixed deposits cannot be redeemed early. In other words, money cannot be withdrawn for any reason until the time-duration on the deposit has expired. If money is withdrawn early, then the bank can charge an early withdrawal penalty or fee. A very common example of a fixed deposit account is a certificate of deposit (CD).

For more, see our Certificates Of Deposit Tutorial.

This question was answered by Chizoba Morah.


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