Demand Deposit vs Fixed Deposit
Demand deposits and term deposits refer to two different types of deposit accounts available at a bank or similar financial institution, such as a credit union. Demand deposits and term deposits differ in terms of accessibility or liquidity, and in the amount of interest that can be earned on the deposited funds.
Term Deposits
Term deposits, also known as time deposits, are investment deposits made for a predetermined period, ranging from a few months to several years. The depositor receives a predetermined rate of interest on the term deposit over the specified period. Funds deposited for longer periods command a higher FD interest rate. Term deposit accounts pay a higher rate of interest than traditional savings accounts.
Funds cannot be withdrawn from a term deposit account until the end of the chosen period without incurring a financial penalty, and withdrawals often require written notice in advance. At the end of the period, the depositor has the choice of withdrawing deposited funds plus earned interest, or rolling over the funds into a new term deposit. The most common form of a term deposit is a bank certificate of deposit or CD.
Demand Deposits
Demand deposit accounts offer greater liquidity and ease of access as compared to term deposits but pay lower interest rates, and they may also include various fees for handling the account.
Depositors can withdraw any or all of the funds in a demand deposit account at any time without penalty or prior notice required, although some banks charge a small fee if you exceed their limit of monthly withdrawals.
Funds a depositor may need to access at any time should be kept in a demand deposit account. Examples of demand deposit accounts include regular checking accounts, savings accounts, or money market accounts.
FAQs on Demand Deposit vs Fixed Deposit
- What is better? Demand deposit or fixed deposit?
While demand deposit allows you to withdraw your deposit anytime you want, for fixed deposit there is a lock-in period before you are allowed to make the withdrawal. However, both are good in their own way. In case of immediate financial requirements, you can consider withdrawing the required amount from your demand deposit account, while you can consider investing in fixed deposit in order to meet your future financial requirements.
- What is the time period for which I can invest in demand deposit?
There is no time period for which you can invest in demand deposit. You can keep your savings in a demand deposit account for as long as you want.
- Is demand deposit safe?
Yes, demand deposit is safe as not only does it allow you to keep your money safe in bank but also ensures you can have access to it anytime you are facing cash crunch. You can make any number of withdrawals without having to worry about any charges to be paid for it.
- What is the time period for which I can invest in fixed deposit?
You can invest in fixed deposit wit time period ranging between 7 days and 10 years. Based on your financial requirements you can choose the time period based on which you will earn interest on your deposits.
- What is the interest rate for demand deposit?
The interest rate for demand deposit may range between 4% and 6%.
- What is the interest rate for fixed deposit?
The interest rate for fixed deposit may range between 3% and 10% depending on the tenure for which you will be investing in FD. The interest rate offered may vary from bank to bank and is subject to change.
- Is interest on FD taxable?
Yes, interest earned on FD is considered ‘income from secondary sources’ and hence it is taxable.
- Is there any FD scheme which is tax free?
There are banks which offer tax-saving FD schemes which has a lock-in period of five years. It is designed to help you save tax.
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