Difference between Fixed Deposits Vs Savings Account

There are several short-term investment instruments that one can opt for to understand the investment market before choosing a long-term investment scheme. These investment plans have several benefits, along with giving the investor insight into the investment instruments.

Fixed Deposits and Savings Accounts are the two best options when it comes to short-term investment plans. These are similar and different in many ways. Several investors have questions like is Bajaj Finance FD safe? Should I consider investing in a savings account? Here are some of the differences between Fixed Deposits and Savings Account discussed in detail which are worth noticing while deciding to invest in one of these investment instruments.

Fixed Deposits vs Savings Account

These are some of the distinctive features which make up to the significant differences between Fixed Deposits provided by several banks and NBFCs(Non-Banking Finance Companies) such as Bajaj Finance and Savings Account service, which is available with almost every bank.

Interest Rates

Interest rates are an essential feature to keep in mind while deciding upon your investment instrument. In the case of Fixed Deposits, the interest rates are fixed, which varies between 6-8%. Whereas, in savings accounts, the interest rates keep fluctuating as per the market rates. Usually it remains in a range of 3 to 4% per annum.

Investment Limit

Investment limit refers to the amount of money which can be invested in an investment plan. There is no limit on the amount of money that you can deposit in a savings account. Neither are there any limits on the number of transactions that can take place in a savings account. On the other hand, while investing in a Fixed Deposit, the amount of money to be invested is specified at the beginning of the investment plan, and the interest rates on that amount are pre-defined too. Moreover, there are restrictions in case of premature withdrawal from Fixed Deposit.

Investment Tenor

The investor should be very clear about the period that they are willing to commit to an investment plan. Investment tenor refers to the period fixed for an investment scheme. In Fixed Deposits(FD), the investment tenor is decided at the time of investment itself. Whereas, there is no fixed tenor in investing in a savings account. One can deposit and withdraw money in a savings account at any time of the year.

Liquidity Value

It is crucial to decide upon the liquidity value you wish your investment instrument to have. Liquidity value refers to the flexibility an investment plan provides the investor to encash the invested money. The invested funds can only be withdrawn upon maturity of the Fixed Deposits. But in the case of Savings Account, the investor can have multiple transactions from the same Savings Account without any barrier for the same.

Tax Benefits

Since the interest rates are not very high on a lot of secure investment plans, it is essential to keep an eye on the tax benefits that any schemes provide. You should know if the plan you are investing in has tax exemption or not. If not, how much tax is levied on the interest earned?

There are no tax benefits that can be availed on the transactions made from a Savings account. Whereas, the interest earned from the investments made in certain Fixed Deposit Schemes are exempted from tax obligations under section 80c of income tax.

Loan Against the Investment Plan

Various banks and NBFCs provide their customers the loan against some investment instruments that the customer can present as a security for availing a loan. This feature should be taken care of while investing because it may become beneficial in a time of crisis.

You cannot avail a loan against a savings account in any case, but it is possible for you to get a loan against Fixed Deposits under some conditions.

All of these factors give us a fair idea about how the Fixed Deposits Vs Savings account are different as investment instruments. Several points mentioned above give us a better understanding of which investment plan will be better for our investment portfolio in different scenarios. It is essential to keep these factors in mind while assessing any investment instruments for your future financial plans