Bank FD vs Savings account – Which is better?
Like many other nations, India is well known for saving and investing money in various banks and financial institutions to earn interest.
Savings Accounts, Fixed Deposits, and Recurring Deposits are India's three most popular and traditional categories of savings instruments. There are numerous options on the market when it comes to saving money.
Which is best for you, though?
Your money is available in various accounts, such as a Fixed Deposit or a Savings Account. Which one do you choose to open? Savings and Fixed Deposit Accounts are excellent tools for growing your money, but they serve different functions and goals.
This blog will evaluate two money-saving options – Fixed Deposits Vs Savings Accounts- and discover their fundamental differences.
Understanding Fixed Deposits
Banks, Post Offices, and NBFCs offer Fixed Deposits as a financial product. For example, a Fixed bank Deposit provides higher interest rates than a typical savings account.
As the name implies, the deposit amount and interest rate are fixed for the duration of the Bank FD.
The interest rates on bank FDs currently range from 3% to 6% and remain constant regardless of market volatility. In addition, investors can also choose tax-saving fixed deposits, saving them up to ₹1.5 lakhs in tax under Section 80C.
Understanding Savings Account
Savings Accounts are deposit accounts that can be opened at banks or other financial institutions and provide a moderate interest rate on the initial deposit. Interest rates offered by various banks range from 2% to 4%.
A savings account is also the most liquid investment because it can be withdrawn immediately. As a result, it is equivalent to having cash on hand but stored safely. A savings account is also a risk-free investment with guaranteed interest.
According to Section 80TTA, interest on savings accounts is tax-free up to ₹10,000. After that, however, any interest income that exceeds the threshold is subject to taxation based on the taxpayer's tax bracket.
Key Differences Between Fixed Deposits and Savings Accounts
Fixed Deposits and Savings Accounts are two distinct concepts with utterly different uses, but there is no denying that even if they are opposites, they are two sides of the same coin.
So, let us examine the main difference between Fixed Deposits and Savings Accounts.
|
Characteristics |
Fixed Deposits |
Savings Accounts |
|
Meaning |
A Fixed Deposit (FD) is a financial product offered by banks or non-bank financial institutions that gives investors a higher interest rate than a typical savings account up until the specified maturity date. |
An essential type of financial product is a Savings Account, which enables you to deposit funds and typically earns a modest interest rate. |
|
Purpose |
To earn interest on their lengthy investments, people open Fixed Deposit Accounts. |
People's primary purpose in opening Savings Bank Accounts is to keep their money safe along with transfer motives. |
|
Rate of Interest |
Fixed Deposits offer higher interest rates, ranging from 5% to 8%. |
The interest rate for a Savings Account is variable rather than fixed. Interest rates on Savings Accounts typically range from 2% to 4%, which is considerable. |
|
Tenure |
The bank where the FD account is held determines the tenure duration of FDs. The average FD lasts between 7 days and ten years. |
Tenure and Savings Accounts are entirely unrelated. |
|
Limit on Withdrawals |
Only after the tenure period has passed can withdrawing money from FDs. |
There are no withdrawal restrictions from savings accounts, and withdrawals are allowed. The account holder may make any withdrawals as long as the account balance stays at the minimum. |
|
Tax Advantages |
Section 80C of the Income Tax Act allows tax benefits for tax-saving FDs with 5-year lock-in periods. |
Savings Accounts offer no tax advantages. |
|
Loan Provision |
You can use the bank fixed deposit as collateral. In addition, you may take out an emergency loan on your current FD. |
Savings Accounts do not typically offer loan facilities through Indian banks, but some exceptions exist. |
|
Liquidity |
Since funds cannot be obtained during the tenure, FDs have limited liquidity. Therefore, customers who need to cancel their FD due to an emergency must apply to the bank. |
Savings Bank Accounts offer high liquidity because customers can make premature withdrawals. |
|
Senior Citizen Advantages |
Older people typically receive higher interest rates on Fixed Deposit Accounts, which allows them to increase their financial resources significantly. |
Savings Accounts are an excellent alternative for people with fixed incomes, but many banks also offer senior citizen discounts on savings accounts. |
Conclusion
In conclusion, everyone needs a Savings Account because it is their first investment activity.
Additionally, a Bank FD enables you to achieve your financial objectives and build wealth. As a result, before choosing an investment option, investors must be clear about their investment goals and make informed decisions.
Therefore, choosing between a Fixed Deposit vs Savings Account is better is entirely up to you. Invest wisely!