Why Choose Fixed Deposits Over Savings Account?

Everyone works hard to make a living and give our family the best of life. Though, it is equally important to have sufficient savings to meet future needs, and meet your financial goals. It is important to have some cash aside as emergency funds. Apart from saving your money, it is important to invest your money wisely.  Investing money helps your saved money to grow, build a financial corpus, and be financially secured.

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Keeping all your money in a savings bank account may not be a wise approach. You can park your surplus funds in both Fixed Deposits and Savings Accounts as both of them are excellent instruments as both of them offer stability and safety. However, if you want to grow your funds, along with growth and flexibility then you can park your savings in Fixed Deposits.

Fixed deposits as a financial instrument pay off a fixed rate of interest till the maturity date. Fixed deposits have many other benefits which make them a preferred investment option.

Comparison Between
Fixed Deposits, Guaranteed Return Plans & Debt Mutual Fund
Guaranteed Return Plans, Fixed Deposits &
Debt Mutual Fund
Guaranteed Return Plans
Returns Before Tax
7.5% (TAX-FREE)
Returns After Tax
7.5%
Guaranteed Returns
Yes
Life Cover
Yes
Tax on Profit
Tax Free*
Risk
No Risk
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Still Better than FD’s and Debt Mutual Fund
Fixed Deposits
Returns Before Tax
7% (TAXABLE)
Returns After Tax
4.8%
Guaranteed Returns
Yes
Life Cover
No
Tax on Profit
Taxable
Risk
Low Risk
Debt Mutual Fund
Returns Before Tax
8% (TAXABLE)
Returns After Tax
5.5%
Guaranteed Returns
No
Life Cover
No
Tax on Profit
Taxable
Risk
High Risk
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*For annual premium upto ₹5 Lacs

7 Major Reasons Why Investors Prefer Fixed Deposits to Savings Account:

  1. Higher Rate of Interest

    Money invested in fixed deposit account offers a higher rate of interest that helps in attaining better returns. Short-term fixed deposits ranging from a few days to 1 year can offer you better returns in comparison to the Savings Account. You can easily beat inflation with the accumulated funds. The interest rate can range from 3.50% to 7.50 percent.

  2. Assured Returns

    Investments made in Fixed Deposits offers fixed returns irrespective of the market fluctuations. You can calculate premium using online fixed deposit calculator to evaluate the returns on your investment. This way you can plan your finances better, which will help you in growing your savings.

  3. Higher Interest Rate for Senior Citizen

    The returns on Senior citizens fixed deposits are higher than basic fixed deposit returns.  The returns offered on a saving account differ from one bank to another but the bank offers the same rate of interest to every account holder, irrespective of their age. This is where fixed deposits have a slight edge over the savings account. In fixed deposits, senior citizens are offered 0.25% to 1% per annum higher interest rate as compared to the basic FDs. For example, Axis bank fixed deposit for senior citizens offer fixed investment returns on ranging from 3. 50 % and 7.90% (regular FDs)

    Thus, fixed deposits can help you in providing the much-needed financial support to help you meet your financial requirements.

    fd return beater
  4. Periodic Interest Payouts

    Unlike savings accounts, FDs offer interest payouts periodically to help you plan your expenses as per your requirement. Such payouts work well in your post-retirement years as a source of monthly income to meet your regular expenses. You can invest in non-cumulative FDs if you are looking for regular interest monthly payouts, quarterly payouts, semi-annual or annual payouts. Or else, you can invest in cumulative FDs that offer you total interest earnings after maturity.

  5. Good Saving Instrument

    FDs have a fixed lock-in period and limit the unnecessary withdrawals until the maturity period. In saving account there is no lock-in period. And from investment purpose, accounts with lock-in period are always beneficial.

    You have limited access to your money, which helps you save more. The compound interest gets added to your principal amount and helps you increase your earnings.

  6. A Fixed Deposit Account Offers flexibility

    FDs offer the flexibility to fix your investment for a specific time-period. There are multiple tenure options in a fixed deposit account that ranges from 7 days to 10 years. The tenure may vary from one bank to another but nevertheless, you invest in any of the banks that are offering the best fd interest rates. Make sure that you make an informed decision to avoid any premature withdrawals.

  7. Fixed Deposits are Customizable

    In a savings account, an account holder offers a very limited option. The interest rate in savings accounts is consistent and there are no variations. Savings accounts are almost same in all the banks. However, there are different types of FDs that one can look at as per their own investment requirements and needs.

    For example, if your FD account is linked to your savings account it is called as a flexi deposit scheme. In such schemes, you can fix a threshold limit in your savings account, and when your account crosses that limit, the surplus amount will automatically be invested in a fixed deposit. It helps invest surplus income with ease.

    Furthermore, you can also decide between cumulative and non-cumulative Fixed Deposits. If you want regular incomes, you can invest in non-cumulative FDs. They offer regular interest payouts monthly, quarterly, semi-annual and annually, as per your requirement. And if you want total interest earnings at maturity you can invest in cumulative FDs.

    Now you must be clear that if you want to maximize your wealth, you choose a suitable tenure in an FD for desired returns instead of saving account. Fixed Deposit gives you the desired result with utmost financial freedom and stability.

FD interest rates India have fallen consistently over the last 12 years.
Invest in Plans that offer Guaranteed Returns for over 25 Years

Difference between a Savings Account and Bank Fixed Deposit:

Features Bank Fixed Deposit Savings Account
Duration Fixed tenure ranging from 7 days to 10 years Tenure is not fixed
Deposit Amount Varies from bank to bank ( usually there is no upper limit) There is no upper limit
Interest Calculation Quarterly Daily
Rate of Interest As per the age and tenure of the account holder. Senior Citizens interest rates are higher than regular FDs As per the market
Loan Facility Available Not available
Withdrawal Limit After Maturity ( Pre-mature withdrawal is subjected to loss) Depends on the bank’s minimum balance requirement
Tax Exemption Deduction under Section 80C of the Income Tax Act available only for a Tax Saver bank FD which has a 5 year lock-in period. Not available

To enjoy the benefits of both investing and saving, you need to have a savings bank account to help you convert your money into a bank fixed deposit (FD), when the balance in the savings account exceeds a certain value.

In a Nutshell

As an initial step to your investment activity, you need to open a bank’s savings account. A bank’s fixed deposit can help you in wealth creation and help you meet your long-term financial needs. You can invest in a fixed deposit as a conscious effort to invest wisely and save more.

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