Fixed deposit and savings account are both financial services which gives you the option to save your money in banks or NBFCs. Though both of these have similar features, it is important to learn and understand the elements that make them unique. This will enable you to determine which one is better suited for you.
Here is a detailed look and comparison between these two options.
What is a Savings Account?
This is an account which you open in a bank to deposit and thereby save your money. There isn’t a fixed tenure for which you have to keep your capital in the account. This investment option gives you the freedom to with draw your money when ever you want to.It also gives you the flexibility to add more money to the principal at any given time. Saving accounts have variable interest rates, which means that the interest amount generated may fluctuate according to the financial markets.
What is a Fixed Deposit?
This investment avenue is an account in which a fixed amount of money is deposited for a fixed duration of time.Over the tenure,this amount generates interest.The interest rate remains the same throughout the entire time period of your fixed deposit. However, unlike a savings account, you cannot add more capital into this investment.
Banks and NBFCs offer different interest rates for different tenures. Use online fixed deposit calculators to determine where you will get the highest return for the amount of capital you plan on investing, to better your financial plan.
Additionally, when your tenure ends you have the choice to either withdraw the entire sumor to simply reinvest it, the latter of which will continue to generate more income.
Which Option Offers More Benefits?
Savings accounts give investors access to their money, which is a highly beneficial feature. Unfortunately, this also means that individuals may end up spending the capital rather than saving it. With Fixed Deposits, the only way to access your money before the end of the tenure is to pay a heavy penalty. Hence, most people tend not to break their Fixed Deposits unless they are facing a huge cash crunch.
Usually the interest rate of fixed deposit is higher than savings accounts. However, it is important to take a look at different banks to find out which one offers the best FD interest rates. The tenure of a Fixed Deposit can range from a few days to a so much as ten years.
You can even choose to open multiple Fixed Deposits with different amounts and tenures,depending on your short term and long term financial goals.
Both of these are great avenues for saving money. However, Fixed Deposits seem more favourable as they generate better income for you because of their higher interest rates.
Is there Another Option?
There is actually a third option, which combines the benefits of both.
Nowadays,many banks and NBFCs offers weep in facilities.This basically means that when your savings account has more money than your preset threshold, the surplus amount automatically gets converted into a Fixed Deposit. For example, say you have set your limit as Rs.50,000. Now, if your savings account has more money that this amount, the excess capital will be converted into a Fixed Deposit. Such a feature gives you the best of both worlds.You can access a certain amount of capital from the savings account, while the rest generates a higher interest rate as an FD.