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Press ReleaseSavings Account vs Fixed Deposit Account: Key Differences
Posted on Monday, May 20th, 2024 | By IndusInd Bank
Managing money isn’t just about saving. It’s also about knowing where to save. For most of us, the choice often comes down to two familiar options: a savings account or a fixed deposit. They both help you grow your money, sure—but they’re built for different kinds of savers.
So, which one’s right for you? That depends on how you manage your money and what you’re saving for. Let’s take a closer look.
What are Savings Account and Fixed Deposit Account?
Before we get into the key differences, let’s quickly look at what these two account types actually do.
What is a Savings Account?
This is the most basic type of account but is considered the cornerstone of banking services. As the name suggests, this account offers an individual a secure place to store money along with earning interest. A savings account offers high liquidity by allowing account holders to deposit and withdraw funds as needed without incurring penalties.
A Zero Balance Savings Account enhances this convenience by eliminating the need to maintain a minimum balance. As the savings account provides high liquidity, the interest earned is a modest rate between 3% and 6%. Click here to enter text.IndusInd Bank provides up to 6.75% p.a. on your savings account balance.
Benefits of Savings Account
A savings account is your go-to for handling daily expenses while earning a little interest on the side. Here’s why it works for most people:
- Easy Access to Funds: Need cash in a pinch? Your savings account is just a swipe or tap away.
- Liquidity: Whether it’s an emergency or a routine payment, your money is always within reach.
- Interest Earnings: It may not be much, but your idle money still earns something.
- Safe and Secure: Your deposits are insured up to a certain limit, so your money stays protected.
- Digital Convenience: From mobile apps to net banking, managing your account is simple and fast.
- Auto Payments: Set up automatic payments for bills, EMIs, or investments—no manual tracking needed.
What is a Fixed Deposit Account?
This is designed for individuals seeking higher interest rates by depositing a certain amount for a specified period. Also known as time deposits, the period can range from a few months to several years. Unlike savings accounts, early withdrawal under a fixed deposit account incurs penalties, making it a less flexible option. FDs usually offer interest rates between 5% and 8%. The interest rates for an FD at IndusInd Bank can go up to 7.75%.
Benefits of Fixed Deposit Account
If you’re someone who prefers stability over spontaneity, a fixed deposit might be your kind of savings tool. Here’s what makes it appealing:
- Higher Interest Rates: You earn more compared to a regular savings account, especially over longer durations.
- Capital Protection: Your principal stays intact, making it a safe bet.
- Flexible Tenure Options: Choose how long you want to invest—anywhere from a few months to several years.
- Loan Against FD: Need funds but don’t want to break your FD? You can borrow against it.
- Tax-Saving Options: Some FDs come with tax benefits under Section 80C.
- Guaranteed Returns: No market risks here—your returns are fixed and predictable.
Also Read: Overview of Fixed Deposits
Savings Account vs. Fixed Deposit
| Particulars | Savings Account | Fixed Deposit Account |
| Purpose | To provide a secure place for individuals to store their money while earning a modest interest | To provide higher returns on savings over a fixed period |
| Suitable for | short-term financial goals and emergency funds due to their accessibility and liquidity | Investing surplus funds for a predetermined duration without the need for immediate access to funds. |
| Interest Rates | Savings accounts usually provide lower interest rates. | Fixed Deposit attracts higher interest rates as compared to the savings account. |
| Liquidity | It offers higher liquidity as it allows you to withdraw funds anywhere and anytime | Does not offer much liquidity as funds are locked for a pre-determined period. In case of withdrawal, some portion of interest is forfeited. |
| Risk and Return | Considered as a low-risk investment tool with high liquidity, therefore less returns as compared to fixed deposit | Fixed deposits offer higher returns as the money is locked for a specific time. FD carries minimal risk. |
| Tax Benefit | No tax benefit for keeping money under a savings account | By depositing money in a tax-saving FD, an individual can claim tax deductions of up to INR 1.5 Lakhs according to Section 80C, The Income Tax Act, 1961. |
| Loan | A Loan facility is not available under the savings account | One can fund an emergency loan by keeping the FD receipt as collateral |
| Lock-in period | Savings account has no lock-in period | A fixed deposit account has a lock-in period for which the money is deposited. |
| Benefit to Senior Citizen | Savings accounts provide special benefits for senior citizens | Senior citizens enjoy additional interest rates for depositing money under a fixed deposit account |
| Interest Calculation | Interest is credited periodically, calculated on the average daily balance in the account. | Interest is credited on the agreed-upon terms for the principal amount invested. |
Savings Account or Fixed Deposit: Which is Right for You?
So, what’s the better choice? Honestly, it depends on your financial habits.
- If you like having your money handy for regular use, a savings account is the way to go.
- If you’ve got extra funds you won’t need right away, a fixed deposit can help you earn more without taking risks.
- Many people use both—keeping their spending money in a savings account and locking away surplus funds in an FD.
At the end of the day, it’s about finding the right balance between accessibility and returns. Think about your goals, your spending style, and how comfortable you are with locking in your money—and you’ll know which one fits best.
