There used to be a time when putting money in a Savings Account was not an activity that would be associated with earning interest. If you discussed investing a large amount of money with friends, they would tell you, “put that money in a Fixed Deposit (FD) and you can live off the interest.” It is interesting to note that such statements are never made for a Savings Bank Account and there is a reason for it.
Earlier, interest rates offered by banks on Savings Accounts used to be regulated and was fixed at 4% per annum but now they have been de-regulated. This means banks can now decide on what interest rates they wish to offer for Savings Accounts. So, what should you go in for, a Savings Account or a Fixed Deposit? Before we get into that, let’s first see what the differences between these two are.
Difference between a Fixed Deposit and Savings Account
| Savings Account | Fixed Deposit |
| The amount you can put into the account is not limited. | The amount that can be put in an FD depends on the rules of the bank. Some banks may not have upper limits while others will. |
| There is no fixed tenor for a Savings Account. | FDs have fixed tenors ranging from 7 days to 10 years. |
| Interest rates are not fixed for the duration the Savings Account is held for. | All term deposits come with fixed rates of interest that are specific to the duration of the FD. |
| Interest rates are independent of the period for which funds are held, amount deposited and age of account holder. | Interest rates depend on the amount deposited, tenor chosen and the age of the depositor (senior citizens usually get special rates) |
| There is no special interest for senior citizens. | Most banks offer senior citizens a higher rate of interest. |
| There is no TDS charged on interest earned on a Savings Account. | Interest earned on an FD is subject to TDS based on certain conditions. |
| Interest is calculated on a daily basis. | Interest is generally calculated on a quarterly basis and can be credited to a specified account. Some banks may offer monthly interest credits but at discounted rates. |
| Savings Bank Accounts don’t have types or variations. | Banks offer different schemes for Fixed Deposits, each of which may have its own features. |
| These accounts don’t offer tax savings. | Most banks offer tax-saving Fixed Deposits meant to help customers save on income tax under section 80C. |
| Savings Accounts don’t have lock-in periods. | Fixed Deposits that are made for tax savings come with lock-in periods of a min. of 5 years. |
| Savings Accounts can’t be used to secure loans. | Fixed Deposits, except tax saving FDs, can be used to secure loans. The amount that can be taken as a loan will depend on the bank’s policies. |
Additional Reading: Loans Against Fixed Deposits
Should you opt for an FD or a Savings Account?
The decision to go in for a Fixed Deposit is generally defined by the individual needs of depositors. Let’s highlight a few instances where FDs make more sense than holding money in a Savings Account.
- If you have a substantial amount of money kept in a Savings Account, then you need to put it to work. With a short-term deposit of just a few months, you might earn more than what you could than if the money were to vegetate in a Savings Account.
- Interest rates offered on FDs are higher than those offered on Savings Accounts so helping your money grow in a term deposit is the more lucrative option.
- Let’s say you have a large sum of cash which you intend to use to buy something in a month or two. If you put that money in an FD it could earn more than what you would get from a Savings Account in a couple of months.
- If you are above the age of 60 years, you may qualify for the senior citizens’ interest rate which can be as much as 0.5% above the prescribed rates.
- If you don’t have a credit history and want to create one, you can use an FD as collateral to secure the loan.
- You can even use a Fixed Deposit to get a Credit Card. Some banks will charge considerably lower interest rates for Credit Cards secured by FDs.
- If you, as a depositor, are looking for tax benefits, then FDs are the ones that will give them to you via their tax-saving schemes.
Additional Reading: Everything You Need To Know About Fixed Deposits
The simplest answer to the question of Savings Account or Fixed Deposit would be, “When in doubt, go for an FD!”
what kind of loans exist in the market now a days………………
Hi anmol omer, You can visit our site to view the different kinds of loans we offer. Cheers, Team BankBazaar