You have been working hard to save money, but now you are unsure where to park it for growth and security. You have heard about Savings Accounts and Fixed Deposits but can’t figure out which works best for your needs. Should you keep your funds in a Savings Account for easy access or lock them away in a Fixed Deposit for higher returns? The following article will highlight the key difference between a Savings Account and a Fixed Deposit account to help you decide better.
Fixed
Deposit are two of the most important tools to kickstart this journey. It's important to know the key
differences
and benefits of a Savings Account vs a Fixed Deposit, to leverage both effectively.
Savings Account vs Fixed Deposit simplified
First, let’s decode key definitions of these two financial tools.
Savings Account
This is the most basic bank account, which enables you to start building savings and managing daily finances,
efficiently. It enables you to deposit, receive and transfer funds, earn interest on your fund balance, execute
online shopping transactions, and build an all-around financial management framework.
Fixed Deposit
A Fixed Deposit allows you to accelerate your wealth creation journey. It offers a higher rate of interest compared
to a Savings Account. You also have the option of earning an income
and leveraging this tool as a tax-saving
instrument.
Savings Account vs Fixed Deposit - a brief guide
Here’s a snapshot of the basic differences and similarities between your Savings Account and Fixed Deposit.
Key purpose
By starting a Savings Account, you can deposit cash, receive funds, and continue to nurture your savings securely.
When aiming to expedite savings growth or generate income, opening a Fixed Deposit Account offers a significantly
higher
interest rate.
Guaranteed Returns
Both a Savings Account and a Fixed Deposit ensure guaranteed returns via interest earned. These two instruments are
not market-linked. Hence, they are extremely safe, and secure instruments to help you grow savings.
Interest earned
Fixed Deposits yield higher interest rates when compared to Savings Accounts. These rates can vary among different
banks. Most savings accounts offer between 3 to 3.5 % of interest, while Fixed Deposit offers between 5 and 8% of
interest. Hence, it is important to leverage the latter to expedite savings growth.
Also Read: Know the different types
of Fixed Deposits
Tenure
There is no fixed tenure for your Savings Account. Once you open it,
you can operate it for life. However, a Fixed Deposit comes with a tenure of between 7 days to 10 years. You can
keep renewing it every year, or have the balance transferred to your Savings Account.
Liquidity
Your Savings Account enables easy withdrawals of funds in your account. However, withdrawing from your Fixed Deposit
may come with a penalty, and reduced interest, depending on how soon during the tenure you make the withdrawal.
Tax benefits
A five-year Fixed Deposit comes with a tax deduction of up to ₹1.5 lakhs under Section 80C of the Income Tax Act of
1961. On the other hand, Under Section 80TTA, up to ₹10,000 of interest earned on your Savings Account is not
taxable. However, it is important to note that these deductions are available only in the old tax regime.
Also Read: How
to maximise the potential of Savings Account in 5 ways
Benefits for seniors
Citizens aged 60 and above can enjoy the benefits of a higher percentage of interest. For instance, Axis Bank
provides senior citizens the opportunity to earn interest rates on FDs that are up to 50 basis points higher. It
also offers a Senior
Privilege Savings Account, with special benefits such as discounts on health care centres.
In conclusion
Every consumer must have a Savings Account. On the other hand, the Fixed Deposit enables you to accelerate wealth
creation. Hence, both have unique benefits. Axis Bank offers a spectrum of Savings Account options based on your
needs, and consumer profile. You can activate your account with ease, and a video KYC. Enjoy access to a debit card,
exclusive offers and deals, rewards programmes, and other perks such as insurance coverage.
FAQs
Which is better, a Savings Account or a Fixed Deposit?
A Savings Account offers easy access to funds and earns lower interest, while a Fixed Deposit locks in money for a set period, earning higher interest. If you prioritise liquidity, a Savings Account is better, but for higher returns, a Fixed Deposit is a smarter choice.
Can a Savings Account be used as a Fixed Deposit?
No, a Savings Account cannot function as a Fixed Deposit. Savings Accounts provide flexibility with regular transactions, whereas Fixed Deposits lock funds. However, you can opt for a Sweep-Out Savings Account where funds above the decided threshold in your account are automatically transferred to the linked FD Account.
Can we open an FD without a Savings Account?
Yes, many banks allow you to open a FD without a Savings Account. You will need to complete the Know-Your-Customer (KYC) process and submit the necessary documents.
Disclaimer: This article is for information purpose only. The views expressed in this
article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank
Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the
reader for taking any financial decisions based on the contents and information. Please consult your financial
advisor before making any financial decision.
