We all work hard to make a living and give our family the best life. But it is also equally important to have sufficient savings to meet any emergencies or future needs. It is always a critical aspect to set aside some money when these come in the way.
So you cannot just let your hard-earned money sit there, can you? Gone are the days when we stored money in lockers, and when we opened them again, we found the same amount that was left. It is entirely different now. Your money can multiply, and so one of the safest ways it can multiply is an FD or a savings account.
Why FD Is Better Than Savings Account
If you are a good manager of your finances, you already know this. You have most probably already set aside saving for a rainy day. But with the multitude of saving tools in the market, it might be hard to choose one that suits all of your financial needs.
If you are confused between choosing from an FD account or a savings account, this comparison can help you.
Comparison of FDs and Savings Account Based on Different Parameters
Returns and Interest Rate
Savings Account: In savings accounts, while you have your money sitting in it, you do earn a certain amount of interest. Interest rates are a good way to let your money multiply on its own while it does nothing. Savings accounts in India do have a certain amount of interest rates.
And without a doubt, your money stays where it is — though the rate on a savings account is variable and the bank can change it, so the return is not fixed the way an FD rate is. But just remember, your money needs to stay in the account, and that is how interest is compounded. With the freedom to withdraw whenever it would be like an open cage where you shouldn’t fly.
FD Accounts: Returns and interest rate of fixed deposit are quite different from that of savings accounts. FD interest rates are comparatively higher than saving accounts. Let’s say, a savings account gives you 6% interest, but you keep withdrawing the money whenever you need it, which means you would not enjoy the entire 6% return.
But when compared to a FD, the interest rates are higher than what a savings account could offer, and at the same time, your money stays still, and the interest gives compounding.
Risk
Savings Account: A savings account carries very little risk, but “no risk” overstates it. Deposits at a bank are protected by DICGC insurance up to ₹5,00,000 per depositor per bank, covering principal and interest together; anything above that ceiling at the same bank is not insured. Within that limit your money is safe and available whenever you need it.
FD Accounts: An FD carries the same protection as any other bank deposit: DICGC insurance up to ₹5,00,000 per depositor per bank, principal and interest combined. It is worth being precise about what that covers — it applies if the bank fails or its licence is cancelled, not as an automatic payout whenever a bank is short of cash. Deposits above that ceiling at a single bank are not insured, which is why large sums are usually spread across banks.
Tenure
Savings Account: With the savings account, your interest is always compounded on the money you have in the account, but you have the liberty to withdraw it whenever you need it, which leaves you with no fixed tenures and also no fixed lumpsum returns.
FD Accounts: In an FD, you can invest in days, months, and even years. It varies from one bank to another, but you get to choose your interest rate along with how long you want to keep your money in the FD.
Customization
Savings Account: With a savings account, there are no options account holders can tailor. There are no variations in saving accounts, and they are quite uniform in terms of interest. Opening a savings account in one bank is much similar to opening one and another.
FD Accounts: With FD, account holders can choose what they want. For example, someone who is looking for monthly income post-retirement can opt for a periodic payout. It would help them fund their expenses even after they retire without entering into the savings routine.
And those who seek to invest the lump-sum amounts can choose to invest in a regular FD, where you invest at your convenience.
Similarly, to the ones who choose to maximize their wealth, you can choose the most suited option that accounts for the highest interest rate. It is easier to achieve financial freedom by investing in an FD that gives you a high rate of interest and more safety.
Habit of Saving
Savings Account: We all need the habit of saving but when it comes to a savings account, we are driven to withdraw whenever we please.
At times, even when a withdrawal is mostly unnecessary. It is because we do not have to meet the maturity period. It enables you to withdraw any amount at any time and is proven to be detrimental to your goal of wealth appreciation.
FD Accounts: When it comes to an FD, you are limited from easy access to your money which means you end up saving more. It helps you benefit from the power of compound interest, add more to your principal, and helps to earn more money.
You lock in your attractive interest along with their capital which never stops growing, at the same time, you reap the benefits of it at the end. Compared to a savings account, it is quite a big benefit. You are enabled with a constant habit to save your money rather than spend it. This feature leaves you with a prosperous future.
Senior Citizen Benefit
Savings Account: When it comes to a savings account, every account holder is treated the same with not much of a benefit. Their interest rates are the same as any other holder, even that offer of a senior citizen.
FD Accounts: Through FDs, senior citizens get a higher interest anywhere between 0.25% to 1% per annum, making it go a long way and providing them with much-needed financial support. This means they can enjoy post-retirement years being financially supported by the FD.
Conclusion
The initial step to the investment journey has to begin somewhere. You need to open a savings account for day-to-day activities, but at the same time, a FD is also essential. It can help you in the creation of wealth and meet your long-term financial goal.
You can invest in an FD with the conscious effort to invest wisely and save more. FDs are initiatives of saving and developing the habit of saving among people. They enable a locked-in capital to meet your future goal.
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