In today's world,
saving money has become more crucial than ever before. Whether it's for
emergencies when between
future plans for opening a business, or just to have some extra cash at hand,
choosing the instrument of the right savings is critical. While savings accounts have
been the go-to option for many, fixed deposits have also gained popularity in
Both these instruments
have their own set of advantages and disadvantages, and choosing between them
can be confusing. In this blog post, we will discuss the pros and cons of both
savings accounts and fixed deposits and help you determine which option is
best for your financial goals. So, let's dive in and explore the world of
Savings Account vs Fixed Deposit
A savings account
is a type of bank account where you can deposit your money and earn interest on
it. You can withdraw the money at any time without any penalty. On the other
hand, a fixed deposit is a type of investment where you deposit a fixed amount
of money for a fixed period, and in return, you earn a fixed rate of interest.
You cannot withdraw the money before the maturity date without paying a penalty.
evaluate the differences between these two financial instruments based on
1. Interest Rate
(FDs) tend to provide higher interest rates than savings accounts and can help
you earn better returns on your investments. The interest rates for fixed
deposits can range from 5% to 8% per annum, depending on the deposit's tenure
(6 months to 10 years) and the deposited amount. Senior citizens can also avail
themselves of additional interest rates of 0.25% to 0.75% on top of the regular
interest rate. On the other hand, savings accounts offer lower interest rates,
usually ranging between 3% to 6%, which are less than the interest rates
offered by fixed deposits.
consider the liquidity aspect when selecting an investment avenue. In terms of
liquidity, savings accounts have an edge over fixed deposits as they offer the
highest level of liquidity. As a savings account holder, you have the
flexibility to deposit or withdraw money from your account at any time.
Additionally, you can use your debit card, net banking, or UPI facility to make
payments directly from your savings account to merchants.
Wondering how the Taxation on FD works? Well, when it comes to tax
benefits, regular bank fixed deposits do not offer any tax deductions. However,
if you invest in a 5-year tax-saving fixed deposit, you can avail of tax
deductions under Section 80C for up to Rs.1.5 lakhs. On the other hand, savings
accounts offer tax benefits only on the interest earned. The interest earned on
a savings account is tax-free up to Rs.10,000 under Section 80TTA, but anything
beyond that is taxable. So, while fixed deposits offer tax-saving benefits,
savings accounts offer limited tax benefits on the interest earned.
4. Withdrawal Limit
are an essential factor to consider when choosing between savings accounts and
fixed deposits. In a savings account, you can withdraw funds as per the daily
or monthly withdrawal limit set by your bank. Most banks allow up to four to
five free withdrawals per month. After that, they may charge a fee for
In contrast, fixed
deposits have a lock-in period where you cannot withdraw your funds before
maturity. If you need to withdraw your money before the maturity period, you
may have to pay a penalty fee, and the interest rate may be lower than the
promised rate. Therefore, if you require easy access to your money, savings accounts
are a better option, while fixed deposits are ideal for those who do not
require immediate access to their funds.
5. Loan Facility
One of the primary
benefits of choosing a fixed deposit over a savings account is the loan
facility offered by banks against FDs. Banks provide loans to customers against
their fixed deposit as collateral, which is an easier and quicker process than
a regular loan application. The interest rates on loans against fixed deposits
are also lower than other types of loans, making it a better option for
customers in need of funds.
savings accounts do not offer such loan facilities, and customers will have to
opt for personal loans, which come with higher interest rates and stringent
eligibility criteria. Therefore, if you require funds and want to avoid the
hassle of applying for a personal loan, investing in a fixed deposit and
availing of a loan facility against it can be a wise choice.
6. Proof of Deposit
aspect to consider when choosing between a savings account and a fixed deposit
is the Proof of Deposit (POD) document. A POD document is required when you
need to provide evidence of your deposit to a third party. In the case of a
savings account, the passbook serves as the POD document. However, in the case
of a fixed deposit, the deposit receipt or certificate acts as the POD
receipt or certificate contains essential details such as the depositor's name,
deposit amount, maturity date, and interest rate. It is a crucial document that
needs to be preserved carefully as it serves as evidence of the deposit made.
In case the deposit receipt or certificate is lost or misplaced, the bank will
issue a duplicate copy only after due verification and scrutiny.
Therefore, it is
crucial to ensure that you preserve the deposit receipt or certificate
carefully in the case of a fixed deposit. In contrast, a savings account holder
needs to maintain their passbook to serve as proof of their deposit.
It is important to
choose the right savings method that best fits your financial goals. Consider
whether you need flexibility or a higher return rate, and what your timeline
and risk tolerance are. There are benefits to both fixed deposits and savings
accounts, so weigh all the options before making your decision. It's also
important to remember that no matter which option you choose, having an
effective savings plan can help you reach your financial goals.