You’ve different types of savings options. But how to know which is the best saving option for you? The two common financial products banks provide to you are Fixed Deposits (FD) and savings accounts. Both of these are good savings tools to help you grow your savings. Although, each of them has its purpose and works differently.
Let’s check a detailed overview of how savings accounts differ from Fixed Deposits and what benefits you more. But before moving to the difference between the two, let’s understand what a Fixed Deposit and savings account is.
What is a Fixed Deposit?
Fixed Deposit, abbreviated as FD, is a type of savings instrument the bank offers. In this, a person keeps their money with the bank for a fixed period. By doing so, they will be earning interest on the amount as long as they hold. Moreover, you can withdraw a partial amount if needed without breaking the Fixed Deposit. A Fixed Deposit is the best option for those who want to save a massive amount and want to enjoy a guaranteed return.
What is a Savings Account?
A savings account is opened in the bank. In this account, you can park your savings and withdraw them anytime, as necessary. A savings account is a safe place for storing money, as there is no chance of theft. Moreover, the bank offers interest to the users against the lying amount on their savings account.
How are Savings Accounts Different from Fixed Deposits?
Although banks offer Fixed Deposits and online bank accounts for savings, they both have unique features and operate differently. Refer to the below-mentioned points to know how savings accounts are different from Fixed Deposits –
-
Rate of Interest
The interest rate is one of the biggest differences between the two financial products. Fixed Deposits provide higher interest rates on the deposited amount than a savings account. And, you can expect your money to grow faster in a Fixed Deposit than in a savings account.
Currently, most financial institutions offer a meagre return on Savings accounts. Therefore, saving your money in an FD account will be more beneficial if you want a guaranteed return over a long period.
-
Tax Savings
While depositing money in a savings account, the user is not eligible for any tax saving options. However, an FD holder is eligible for tax-saving options under Section 80C.
-
Flexibility
Regarding flexibility, a savings account tends to be more flexible than FD. Users can withdraw their deposited amount anytime from a savings account. But, the same is not possible with Fixed Deposits. FDs have a fixed tenure and withdrawing money before maturity can result in a penalty fee.
-
Loan Opportunity
Suppose you’re in an emergency and want to secure immediate funds, Fixed Deposits can be a good option. You can borrow a loan against the principal amount of the Fixed Deposit. The loan amount can be up to 90% of the principal amount. And this won’t disrupt the Fixed Deposit returns.
-
Benefits For Senior Citizens
While the senior citizen savings account can be an excellent option for fixed-income people, Fixed Deposits offer senior citizens the best interest rate and services. Senior citizens get an additional interest on their FDs, which vary from bank to bank.
Conclusion
The above-mentioned points are the differences between a Fixed Deposit and a savings account. Going through all the points, you’ll find a Fixed Deposit will be a better option for you, offering a fixed interest rate over time. Moreover, the higher the principal amount, the better interest you will get.
When you’re confused between different banks for opening an FD, don’t worry. You can compare bank’s FD returns to pick the best. The best Indian banks offer 7.25% interest to regular users and 7.75% interest to senior citizens on deposits below two crores.