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Wednesday, June 3, 2020

Which one is better option between FD and Savings Account?

In case you have any excess cash, you can park the same either in a savings account or in a fixed deposit. The predictable returns and safety of the capital invested make them an excellent choice. That said, a fixed deposit has many more benefits over a saving account. Let us check out some of these advantages:

Higher interest rate
Your investments in a fixed deposit earn higher interest than a savings account. You need to look for the highest fixed deposit rates in India that can help you beat the inflation in the economy to a large extent. The interest rates can vary from 7.8% per annum to 8.45% per annum based on the tenure of the deposit and the type of fixed deposit chosen.

No exposure to marker fluctuations
FDs earn a fixed, guaranteed return. As such, they do not carry any risk of market fluctuations. The predictability of returns allows you to plan your finances better. It also makes fixed deposits an ideal option for short- to mid-term horizon where capital preservation is more important.

A higher interest rate is offered to senior citizens
Most banks and NBFCs offer a higher interest rate to senior citizens when compared to other depositors. It is typically 25 to 50 basis point higher. It makes fixed deposits a great choice for investment in your post-retirement years. 

Periodic payout of interest earned available
Unlike with savings account, you can select a frequency at which you would like the interest earned on the fixed deposits to be paid out. These could be as short as a monthly payout, or as long as an annual payout. It allows the fixed deposit to act as a source of regular income, allowing you to plan your expenses accordingly. 

Promotes saving behaviour
As a fixed deposit has a maturity period and withdrawing before this results in a penalty on the earning. It promotes the habit of savings. It also promotes discipline as you cannot withdraw the amount willy-nilly as you can from a savings account. The limited access can make some save more by curtailing impulse buys and other unplanned expenditure. 

Tailored to your needs
You can tailor the maturity period and interest payout mechanism of a fixed deposit according to your needs. Do you need a regular income from your investments? No problem, choose a non-cumulative fixed deposit with a long maturity period. Would you like to build a corpus of funds as you have other stable sources of income? Perfect! Choose a cumulative fixed deposit and see the magic of compounding interest rate.

Loan availability
It is convenient for you to apply for a loan against your fixed deposits. As fixed deposit act as collateral for the loan, the interest rate charged on such loans are lower than personal loans.

Fixed deposits earn a higher interest rate, allow for periodic payouts and enable a loan if required. Thus, FDs are, often considered, a better place to park your excess funds compared to saving accounts. 

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