We all put in a lot of effort to support our families and earn a living. But it’s also crucial to work on carefully saving money for the future, so you can reach your financial objectives.
Additionally, there are ups and downs in life, so you should set aside some money for unforeseen circumstances.
However, simply saving money is insufficient. It’s crucial to make judicious investments in profitable ventures.
An efficient way to make money work for you or create wealth over the long term and ensure financial security is through wise investing.
In light of this, it might not be a wise decision to keep a large sum of money in a savings bank account.
Difference between Fixed Deposit and Savings account
Interest Rate
A bank FD investment generates bigger returns than a savings account since it pays a higher interest rate.
Depending on the tenure (6 months to 10 years) and deposit amount, fixed deposits give an interest rate that ranges from 3% to 6% annually. Senior citizens also receive additional benefits, and they are eligible for an additional 0.25% to 0.75% interest rate on top of the standard interest rate.
Savings accounts, on the other hand, pay interest between 2% and 4%, which is less than the rate on fixed deposits.
Tenure
A bank FD might have a duration of seven days to ten years. This enables investors to buy various fixed deposits with various tenors.
Savings bank accounts, on the other hand, do not have a set tenure. Until the account is closed, it is active forever.
Payout for interest
A bank FD allows the option to access the collected interest on the assets, unlike a savings account. For instance, the regular payouts from bank FDs serve as a steady source of income during the post-retirement era.
You can invest for this purpose in a non-cumulative FD that offers dividends on a monthly, quarterly, half-yearly, or annual basis. A cumulative FD, on the other hand, offers entire interest earnings upon maturity.
This does not apply to savings accounts, though.
Facility for loans
Instead of choosing personal loans with higher interest rates, investors who need money for a financial emergency might ask for a loan against their bank FDs.
To put it simply, the bank FD serves as collateral. The interest rate for a loan secured by a bank FD may be lower. The loan can also be paid back in full or in installments.
Savings accounts, on the other hand, do not offer this benefit.
Premature or partial withdrawal
Bank FDs give investors the option to depart before maturity through premature withdrawal. However, if they take the money out before it matures, they are subject to fines of up to 1-2%.
On the other hand, as long as your savings account meets the bank’s minimum balance criteria, you can withdraw money whenever you choose.
Instrument for saving
With a fixed deposit, your money is committed for a predetermined period, preventing unauthorized withdrawals before maturity. This encourages financial discipline and encourages you to save more money.
Additionally, the principal amount is increased through compound interest, which aids in building wealth over time.
On the other hand, you have unlimited access to your savings account, which could encourage extravagant spending and negate the purpose of maximizing savings.
Taxation
Regular bank FD investments do not offer any tax advantages. However, there is an Rs. 1.5 lakh tax benefit available under Section 80C when investing in a 5-year tax-saving fixed deposit.
The interest generated on a savings account is tax-free up to Rs 10,000 under Section 80TTA, but any interest gained above that amount is subject to tax. However, a savings account only offers benefits on interest income.
Fixed Deposits vs Savings Accounts: Which is Better?
Only when money is invested can it grow, allowing you to earn interest on the principal. The most popular investment choice in India that offers guaranteed returns is a fixed deposit.
A bank FD is an appropriate option for conservative investors with low-risk tolerance levels who want to receive set returns for their goals. By carefully choosing the tenure, it can also take the liquidity needs and short-term objectives into account.
Additionally, it offers seniors better interest rates than a typical bank FD. A bank FD might also be beneficial for tax preparation under Section 80C.
The first step for your principal on the road to investing is opening a savings account.
Additionally, it takes care of every person’s liquidity needs. However, because the earnings on savings accounts are so low, it is not wise to deposit a sizable quantity and leave it there untouched.
You should set aside a particular amount of money for your daily expenses and unexpected expenses, and then invest the rest to grow your money, according to experts.
Final Thoughts
Briefly put, everyone requires a savings account, which is the first step in investing. A bank FD enables you to achieve your financial objectives and build wealth.
When compared to alternative investment options, even FDs offer lower yields.
As a result, before choosing an investment option, investors must be clear about their investment goals and make informed judgments.
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