Why FD is Better than Savings Account
Every individual should not only save money but also invest it wisely. Investing money allows your savings to grow, create a financial corpus, and provide financial security during an emergency. Fixed deposits and savings accounts are safe financial instruments that provide stability.
If your financial goal is to increase your assets with high interest rates and flexibility, fixed deposits may be a good option. When you open a fixed deposit, you receive a fixed rate of interest until the maturity date. In addition to offering high returns, fixed deposits come with several other advantages that make them a popular investment option.
Top 5 Reasons Why Fixed Deposit is Better Than Savings Account
Take a look at the top 5 reasons why a fixed deposit is better than a savings account:
- Attractive interest rates - Fixed deposits earn a high interest rate resulting in better returns. A short-term fixed deposit provides higher returns than a savings account. Senior citizens are offered an additional interest rate along with other benefits.
- Periodic interest payout - A fixed deposit allows you to receive interest payouts based on your preferences. The interest rate on non-cumulative fixed deposits can be received monthly, quarterly, half-yearly, or annually. If you invest in a cumulative fixed deposit, you will receive a higher interest payout. Periodic interest payouts are highly beneficial for senior citizens who need steady income after retirement.
- Guaranteed returns - Fixed deposit investments provide assured returns regardless of the fluctuations occurring in the market. The returns on your investment can be estimated with the BankBazaar online fixed deposit calculator. Thus, you can organise your finances in a better manner and grow your investments.
- Loans against fixed deposits can be availed - If there is a financial emergency or long-term expenses, you can get loans on your fixed deposit conveniently. The principal amount of the deposit serves as collateral for this type of loan. In most cases, the loan amount sanctioned is a percentage of the principal deposit amount.
- Save and increase earnings - A savings account allows you to easily withdraw funds. However, with a fixed deposit, your money is locked in for a certain amount of time. This instils financial discipline which lets you maximise your savings. Fixed deposits provide additional perks such as compoundable interest rates, which help in growing your wealth.
Key Differences Between Fixed Deposits and Savings Account
The important differences between Fixed Deposits and Savings Account are as follows:
Feature | Fixed Deposits | Savings Account |
Purpose | To earn higher interest by depositing lump sum money for a fixed duration. | To save money safely, earn interest, and maintain liquidity. |
Tenure | Fixed duration ranging from 7 days to 10 years. | No fixed tenure |
Interest Rate | Higher (generally 6.40% p.a. - 8.50% p.a.) | Lower (usually 2.5% p.a. - 7.5% p.a.) |
Withdrawal | Can withdraw on maturity (premature withdrawal may incur some penalty) | Withdrawal process is free and flexible |
Liquidity | Low as funds are locked for a fixed chosen duration | High as money is available on demand |
Returns | Returns are fixed and delivered on maturity | Return varies as it depends on account balance and bank policy |
Interest Payment | Paid at maturity or periodically | Credited monthly or quarterly |
Tax Deduction at Source (TDS) | Applicable for individual when interest exceeds Rs.40,000 per year (Rs.50,000 in case of senior citizens) | TDS is not applicable, but interest earned is taxable |
Nomination Facility | Available | Available |
Ideal for | Long-term savings and investments | Short-term savings and regular transactions |
All things considered, if you wish to earn high returns at low risk, a fixed deposit may be the ideal investment option rather than a savings account. Fixed deposits help you meet your financial goals with financial independence and security.
FAQs on Why FD is Better than Savings Account
- What are the tenures offered on fixed deposits?
The tenures offered on fixed deposits generally range from 7 days to 10 years.
- Why are fixed deposits better than savings accounts?
Fixed deposits can be a better investment option than savings accounts because they offer assured returns at high interest rates.
- Can I avail loans of against my fixed deposit?
Yes. You can avail of loans against your fixed deposit.
- Do fixed deposits provide additional interest rates to senior citizens?
Yes. Fixed deposits provide additional interest rates to senior citizens.
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