When it comes to your wealth, your first instinct may be to park any surplus in a savings account. This isn’t the worst idea as a savings account does offer you unmatched liquidity. When used well, it can help you save money and allows you to tap into the corpus as needed.
However, while savings do matter, it is equally important to invest your funds. At this stage, you will find that fixed deposits are a viable option, and one that is better than a savings account. This is when you should do a fixed deposit vs savings account comparison to understand which option serves you best.
A few reasons to favour fixed deposits in the FD vs savings account debate are as follows:
Higher rate of interest
Greater flexibility in investment
Read on more insights into the fixed deposit vs savings account dilemma and how you can invest in truly lucrative FDs from leading issuers on Bajaj Markets.
A savings account is a deposit account opened at a bank or a financial institution, wherein your money is stashed away in an account and accrues interest at a low rate. You are required to maintain a minimum balance in your account, failing which certain charges are levied.
However, there is also another option of a zero balance, Basic Savings Bank Deposit (BSBD) account. When you opt for a zero-balance account or a no-frills account, there is no need to maintain a minimum monthly balance.
You get cheque and passbook facilities along with ATM/Debit card and internet banking services in a savings account. Through internet banking, you can transfer funds to other accounts using electronic transfer methods like NEFT and RTGS. Additionally, you can check your monthly bank statement from the comfort of your home.
However, there is an ATM withdrawal limit set by most institutions, depending on the savings account type you choose. With this limit, you can withdraw only a particular amount in a day.
All these additional features may vary depending on your account type. For instance, a premium savings account holder may get better features when compared to a no-frill account type.
Interest rates on a savings deposit can range from 2.5% to 4% on an annual basis depending on the bank. Savings accounts are a good option for you if you plan to deposit funds on a short-term basis. You can easily liquidate your savings deposit for short-term requirements or emergencies without any tax implications.
A fixed deposit is an investment instrument wherein you park your funds for a fixed tenor at a predetermined rate of interest. The tenor can range from a few days to several years while the interest rates start at 5.40%, going up to 7.95% or higher, depending on the financial institution.
Fixed deposits are offered by various financial institutions, including banks and non-banking financial institutions. The interest rates on an FD are decided on the basis of the institution’s benchmarking policies. For instance, a benchmarking reference rate is the RBI’s repo rate. Depending on the market conditions, the RBI increases or decreases the repo rate. These changes are reflected in the FD rates offered by issuers and hikes in the repo rate will lead to higher FD rates too.
It is crucial to analyse interest rates offered by various issuers and choose an FD that can maximise your earnings in a given time frame. On comparing savings account vs fixed deposit, it is important to know that it is not as easy to liquidate an FD as compared to a savings account.
Once your money is locked in for a specific tenor, you may not be able to withdraw funds as and when you like. Most issuers have a lock-in period, and this can range from a few months to a year. For the same, you may need to prematurely withdraw your FD to get your money and this incurs a penalty.
To help you better understand fixed deposit vs savings account comparison, take a look at the table below:
No fixed tenor
Tenor is fixed ranging from 7 days to 10 years
Interest is calculated on a daily basis
Interest is usually compounded on a yearly basis
The interest earned does not vary based on customer type
The interest rate varies based on the FD tenor and investor type. Senior citizens get a higher rate of interest as compared to non-senior citizens
Does not qualify as an asset for loans
Issuers offer a loan against fixed deposit provision
Individuals can withdraw funds as and when required
Investors can liquidate an FD only after maturity. Premature withdrawal can attract penalty charges.
Now that you have a brief overview on the differences, here are the reasons why fixed deposits are always a better investment option.
Higher rate of interest
While savings accounts can provide you with nominal annual interest rates ranging from 2.5% to 4% depending on the bank and amount, fixed deposits provide a higher interest rate ranging from 3.5% up to 7.95% p.a. If you are looking to invest in an FD with competitive interest rates, you can find offers from top issuers on Bajaj Markets.
Unlike savings accounts, where there is no fixed tenor, you can invest in a fixed deposit in flexible tenors ranging from 12 months to 60 months. There is also an option of investing in multiple fixed deposits with different tenors. This way you can ladder your investments over a period and accumulate higher returns.
Interest payout can be availed as per your choice
In a fixed deposit, you have the option of receiving interest payout according to your choice. If you invest in non-cumulative fixed deposits, the interest rate can be received on a monthly, quarterly, half-yearly or annual basis. If you wish to invest in cumulative fixed deposits, you can avail a higher interest payout on maturity.
If you chose to invest in a tax-free fixed deposit with a minimum lock-in period of five years, you can also avail tax benefits. Under Section 80C of the Income Tax Act, you can claim a tax benefit of up to ₹1.5 Lakhs on interest payouts.
Option of availing a loan against fixed deposit
Unlike savings accounts, you can avail easy and hassle-free loans on your fixed deposit. Such a loan is easy to secure as the principal amount of the deposit acts as the collateral.
The sanctioned loan amount is generally a certain percentage of the principal deposit amount. A loan against your fixed deposit enables you to meet any unexpected financial crisis without having to disrupt your investments.
You can easily withdraw money from a savings account. But in the case of a fixed deposit your money is locked-in for a specified period. This inculcates a sense of financial discipline, and you tend to save more.
Fixed deposits also provide added benefits like compoundable interest rates, which further increases your earnings. Through financial discipline, your wealth accumulates over a period of time.
Option of calculating interest beforehand
In a fixed deposit, you can calculate the interest payout before making an investment by using an online fixed deposit calculator. Enter details like the amount to be deposited, payout mode and the deposit term.
Within minutes, you can determine your interest earnings at the applicable interest rate by using this simple and convenient online tool. On Bajaj Markets, you can use an FD calculator to evaluate your returns before investing.
Fixed deposits also come with a slew of convenience features. It is easy to open an FD as it requires minimal documentation. Submit KYC documents along with your recent photographs, a copy of the bank account and a cancelled cheque. There are many additional services you can get on booking an FD.
For example, on Bajaj Markets, you are provided with:
Easily accessible touch points
Simple and transparent policies
Detailed SMS and email communication to customers while booking a fixed deposit, from request to maturity
Scanned copy of all the documents submitted by you, available online for easy access.
Before zeroing in on a fixed deposit, ensure that the financial institution has the requisite creditworthiness. On Bajaj Markets, you can select fixed deposits with excellent ratings from leading rating companies like CRISIL, ICRA, and others.
This way, you can receive attractive and assured rates of interest along with the security you need to stay invested for a lengthy timeline. With all these factors accounted for, choosing the right deposit becomes an easy task.
You can open a savings account with banks and other financial institutions that offer the provision.
Both fixed deposits and savings accounts are safe options to park your funds in, and you enjoy a great deal of security in both cases.
Fixed deposits do not offer as much liquidity as a savings account. Once you have booked an FD, your money is locked-in for the tenor. However, you can prematurely withdraw your money and will incur a penalty.
Fixed deposits are a better choice when the goal is to grow your wealth. This is because the FD interest rates are higher than the rates applicable on savings accounts.