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How are Fixed Deposits different from Savings Accounts

RBL Bank Jun 24, 2020

Wealth creation is essential, but growth and preservation is just as important. That is why while investment opportunities should play a role in every portfolio, so should opportunities for saving and financial growth. For this purpose, most individuals tend to choose one of two popular saving options: fixed deposits and savings accounts.

But how do you determine which one is the better option for your financial needs? To help you make this crucial decision, here are a few points about how fixed deposits are different from savings accounts:

Fixed Deposits vs Savings Accounts

  • Meaning:

    Let us start by first making the distinction between the two definitions. Savings accounts are typically accounts held in a bank. These accounts serve the purpose of depositing and storing your finances, while allowing you to make payments and transactions through it. Over time, you also earn interest on the money stored in your savings account.

    Meanwhile, fixed deposits are a different type of account held in a bank wherein you can deposit money but cannot make transactions or payments through it. The money is deposited in a fixed deposit for the sole purpose of saving and earning interest on it. This amount of money, along with the added interest, can then be withdrawn at a later date.

  • Rate of interest:

    An important difference between fixed deposits and savings accounts is that of their typical rate of interest. Based on your financial priorities, this factor will play an important role in which of these two options you choose to go with.

    Savings accounts are typically not considered a form of investment, which means that earning interest on its deposits is a secondary function. Moreover, this rate is not fixed, but is instead subject to change.. Having said that, the interest rates offered by savings accounts typically range between 4-6%, which is considerable.

    On the other hand, finances are deposited in fixed deposits with the intention of earning interest on the deposited amount. Therefore, fixed deposits are a form of investment and offer typically higher interest rates ranging from 5-8%. Overall, this means that your savings in a fixed deposit account will grow faster and yield more significant, inflation-adjusted returns than savings accounts.

  • Liquidity Options:

    The other factor that determines how suitable these options are for your financial needs, is the option of liquidity that they provide. This is particularly relevant in cases of financial emergency, as a high-liquidity saving option will allow for convenient transactions and easy withdrawals.

    In case of savings accounts, your money is stored in the account for the purpose of not just savings, but also for making regular transactions. The money stored in the account can be used freely to make payments as and when required by you. Moreover, savings accounts also do not come with a withdrawal limit. Hence, they are a savings option that offers high liquidity.

    Fixed deposits, on the other hand, are less liquid by definition. Since the primary function of fixed deposits is to reap interest on your money, they do not favour premature withdrawals. Nevertheless, you can still withdraw your principal amount from fixed deposits at lower interest rates or with the payment of a penalty.

  • Senior Citizen benefits:

    Lastly, a major difference between fixed deposits and savings accounts depends on whether the purpose of saving is to meet the financial needs of a senior citizen. Whether they are retired or close to retirement, senior citizens i.e. individuals above the age of 60, are most in need of viable financial saving options.

    Savings accounts that are specifically geared towards senior citizens can be a great source of financial relief. With these savings accounts, senior citizens can enjoy various tax benefits, higher interest rates and avail relationship pricing that offers them discount brokerage charges - just 25% on delivery instead of the usual 50%. They also offer health benefits, providing discounts on hospitalization, medical finance advice and services from a large network of hospitals.

    On the other hand, senior citizen fixed deposits are created to offer them a simple and safe form of investment that helps them maximize their returns with higher-than-general public interest rates. Senior citizens can also claim tax deductions of up to Rs. 50,000 on the income earned from such FDs.

    Features such as these make fixed deposits an apt option for senior citizens since the ease of their post-retirement lives is dependent on how much they can contribute to their retirement corpus.

Conclusion

All in all, out of fixed deposits and savings accounts, the saving option that best works for you depends largely on your financial priorities. Savings accounts are ideal for salaried individuals who seek financial flexibility while earning decent interest on their deposited amounts. Meanwhile, fixed deposits are ideal for individuals looking to earn substantial interest on their deposits to meet their future financial goals.

At the end of the day, whatever saving option you go for, it is important to be aligned with a reliable bank that can meet all your financial requirements. To that end, the RBL Bank promises to be the trusted financial institution you need. Established in 1943, RBL Bank guarantees to provide a wide range of services and products customized to help you meet your financial goals.

To know more about RBL Bank Savings Accounts, please click here.

To know more about RBL Bank Fixed Deposits, please click here.

Disclaimer: Articles published on the website are merely indicative and suggestive in nature and do not amount to solicitation. The contents do not guarantee the desired returns and/or results. Reader is advised to exercise discretion and consult independent advisors for achieving desired result. Visitors to this blog/ website w.r.t products & services offered by RBL Bank Limited herein, shall ensure that the comments / feedback posted shall be restricted to the contents published herein and shall not contain such language that may be un-parliamentary or against any religion, caste, section of society, political view etc. While our endeavor is to publish the comments that are submitted, however, all comments/feedback shall be subject to internal review by RBL Bank Limited. We do not guarantee that the comments that are submitted will be published.

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