What is the Difference Between Fixed Deposit & Saving Account?

There is a golden rule that you must adhere to if you are a careful financial manager: always save enough money for unexpected expenses. However, selecting the best savings investment tool for your needs may be challenging given the variety of options available. Fixed and Savings Accounts are two different investment options having different features but allow you to park your money and earn interest at the prevailing rate. We've broken down the difference between fixed deposit and saving account for your convenience so you can make an informed investment choice.

What is a Fixed Deposit Account?

Fixed Deposit is an investment option where an amount is invested for a fixed period of time. The investment in FD receives interest as per the rate prevailing at the time of account opening. Banks interest rates are constantly not affected by the market as well as investors can save on tax through tax deduction upto1.5 lakh under section 80C.

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What is a Savings Account?

Savings Accounts are deposit accounts that can be opened at banks or other financial institutions and pay a reasonable interest rate on the original deposit.  A savings account is also the most liquid investment, as money may be taken right away.  As a result, it is the same as having cash on hand yet stored securely. Section 80TTA allows for tax-free interest on savings accounts up to ₹10,000.  After that, any interest income that exceeds the threshold is taxed according to the taxpayer's tax bracket.

What is the Difference between Fixed Deposit & Saving Account?

Interest Rate- 

Fixed Deposits pay substantially greater interest rates than Savings Accounts. A Fixed Deposit account allows you to watch your savings grow far faster than a Savings Account, and you may expect large, inflation-adjusted gains over time. 

We all know that idle money produces no returns, thus it should be invested as efficiently as possible. Making the right investing decisions might mean the difference between seeing your money grow quickly or slowly. This is defined by the interest rate of your investment tool of choice and is the primary difference between Fixed Deposit and saving account.

Flexibility- 

Savings Accounts include a set of predetermined features. Savings Accounts generally offer similar interest rates with few variances. Fixed deposits, on the other hand, can be tailored to meet a variety of financial demands, both short and long term. Fixed Deposits (FDs) have a range of tenures, from 7 days to 10 years, and the interest rates improve the longer you keep your money deposited in them. Aside from that, you can choose between cumulative and non-cumulative FDs, with the latter offering monthly, quarterly, semi-annual, and annual dividends.

Opportunity to acquire a loan-

Only one of these possibilities can supply you with another answer to your financial emergency.  If you ever find yourself in quick need of funds, only Fixed Deposit accounts allow you to take out a loan against your main amount.  You can get a loan against your Fixed Deposit for up to 90% of the principal amount to meet your financial demands without disrupting your Fixed Deposit deposits.  

Opportunity to Save-  

We all have different strategies for saving money. Some of us enjoy creating budgets, while others prefer to maintain greater control over their spending. One of the most successful strategies to save money is to set aside a large sum of money and allow it to grow without interruption or withdrawals. The penalties imposed by Fixed Deposits primarily serve to discourage you from pausing the growth of your deposit amount and saving it for rainy days.

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Senior Citizen Benefits-  

No one needs the benefits of money-saving facilities more than senior adults. Without an income after retirement, senior citizens must rely on every bit they can save to ensure a pleasant future. Savings Accounts are a good choice for anyone with fixed incomes, fixed deposits are the choice for those who want to save for post-retirement. Furthermore, Fixed Deposit accounts often offer greater interest rates for senior adults, allowing them to significantly increase their savings at a time when they need it the most.

While both saving and fixed deposits serve the purpose of growing money but for different financial needs. A savings account offers liquidity and easy access to funds whereas a fixed deposit offers higher interest on idle funds over a fixed period. Understanding the key differences between fixed deposit and saving account can help to choose among the options as per their requirements.

FAQs-