A comparison of saving accounts and bank FD

The term “savings account” refers to a safe, reliable place where money can be stored that is not urgently needed and that pays modest interest rates. Today’s millennials feel safe storing their hard-earned money in a place like this. Banks use this money to provide loans to people. As people say, saving your money is as crucial as earning it, so a savings account does just the right job here for people.

The workings of a savings account

It works in a very uncomplicated manner. A savings account facility is provided by banks and credit unions for customer convenience, both online and offline. Loans are obtained with this amount for people who need them. Every bank or credit union has a variable rate of interest. Some banks require a minimum balance in accounts to avoid charges. Money can be easily transferred from a savings account by means like UPI, net banking, cash withdrawals at ATMs, etc. Chequebook and debit card provisions are made for people holding a savings account.

Advantages of a savings account

• It’s a safe and reliable way to stash away money.
• In the end, you earn benefits by earning interest on your amount.
• Liquidity is offered, so that if required, money can be withdrawn.
• Working is simple and straightforward.

Disadvantages of a savings account

• There can be a temptation to spend money rather than store it when liquidity is offered.
• Interest rates are not very attractive and fluctuate a lot.
• Some banks have limited or restricted transaction allowances.

If you are interested in opening a new savings account, read this article to find out more.

About Fixed Deposits

Introduction to Fixed Deposit

Commonly known as a “bank FD,” it is an investment option offered by banking and non-banking companies with the main aim of saving money over time by investing an amount and earning interest on it. A lump sum amount can be withdrawn only when the tenure opted for the bank FD is over. Tenure can vary from 1-2 weeks to 10 years. It is one of the safest and simplest investment options right now with a higher rate of interest and holder benefits like loan allowance etc. These FD-offering companies have special schemes for senior citizens too.

Types of Fixed Deposits 

• Standard Bank FD- A very common fixed deposit that can be opened at a bank where the holder already has a savings account. The bank applies the interest rates accordingly.
• Cumulative bank FD– Best for investors with long-term profit goals, as money gets locked up for a specified period and can only be withdrawn after that particular period itself as a lump sum amount. It prevents temptations to withdraw money or use it before the lock-in period is over.
• Non-cumulative bank FD– Best for investors who want to pay EMIs; this enables them to set monthly, quarterly, half-yearly, etc. goals. This allows them to withdraw money on a regular basis while still reaping the benefits of the fixed deposit.
• Corporate bank FD- Offers good interest rates, it’s a fixed deposit at private firms, and investors should always check the credit rating of these companies before investing.
• Senior citizen bank FD– A special fixed deposit scheme for people over the age of 60. They get a slightly better interest rate than others.
• Tax saving Bank FD– Used for tax savings and exemption of taxes, it has a lock-up period of around 6 years during which money deposited cannot be touched.
•  Bank FD for NRIs- A special fixed deposit scheme for NRIs (non-resident Indians), so that they can easily invest money in India and earn tax-free income from the interests earned on it.

Advantages of a Fixed Deposit

• Bank FD offers assured returns no matter the rise or fall of the market.
• Interest compounding is highly beneficial. 
• Offering slight liquidity. 
• Easy and reliable process. 
• Senior citizens benefit.
• One-time effort bearing great fruit later.
• Tax benefits.
• Can be used to obtain a loan.

Disadvantages of a fixed deposit

• Fixed interest rates throughout the tenure. 
• Locked up funds.
• Penalties or losses on withdrawal before the tenure’s completion.
• Interests earned are taxed.

To read more about FD, check out these articles: link1 link2 link3

Comparing Saving Accounts and Fixed Deposit

Saving Account	Fixed Deposit
Aim: To keep funds that are not in use at the moment safe.	Aim: Earn interest from a one-time investment, focused on a long-run benefit.
The liquidity offered, i.e., one can withdraw money in case of need without compromises( it can cause temptation though)	Liquidity is somewhat compromised as on withdrawing money before the completion of tenure, loss on FD interest rates and penalties are to be paid in some cases.
No Fixed tenure is to be followed.	A definite tenure is to be followed, it can range somewhere between 1-2 weeks to 10 years.
Saving account rate of interest ranges between 2-4%	FD interest rates range between 5-8%
One cannot avail loan based on this.	One can obtain a loan based on a Fixed deposit.
No Tax benefits earned.	Tax benefits can be earned.
Money can be transferred into a saving account regularly.	It’s a one-time investment, money can only be put into the account once in a lump sum way.
Withdrawal and transfers are available anytime using modes like ATM cash withdrawal, UPI, net banking, etc.	Withdrawal and transfer are restricted before tenure completion and can cause FD interest rates losses and Penalties.

Hopefully, this comparison gave you a clear insight into savings accounts and fixed deposits. 

Investing money in the right place is crucial, and the right research can help you make that decision feel like a cakewalk. 

There are several market leaders and experts such as Piramal Finances, you would find more information and guidance for finance and Personal banking related topics at https://www.piramalfinance.com/personal-loan