We work tirelessly to earn a decent living for ourselves and our family and put part of our income as savings to meet future immediate financial emergencies. However, only putting money into savings accounts may not be an informed decision to deal with contingencies. 

It is crucial to invest some of the idle money and generate wealth in the long-run to be financially secured instead of holding them all in a savings bank account. Given the saving and investment tools available, it might be hard to choose one instrument that suits your financial needs. Two most preferred saving and investment tools are saving account and fixed deposit account. 

FD Account- Fixed Deposit Account

It is an account in which Investors are required to invest a fixed sum of money for a set period. It is an investment instrument provided by banks and non-banking financial institutions that offers the highest FD interest rates.  

Savings account

It is a bank account that is generally opened by salaried individuals who want to save money to meet future financial needs.

The below five points explain the difference between a saving account and a fixed deposit account. 

 

  • Interest rate 

 

Fixed deposit accounts offer the highest FD interest rates on the deposit principal amount compared to savings accounts. It also allows you to observe your savings grow and receive returns that are not affected by inflation or market ups and downs. 

Idle money brings no return unless invested in FD accounts. Such investments ensure better returns through interest rates. Whereas, in savings accounts, the funds are put idle and do not ensure a high increase in returns. 

 

  • Flexibility

 

A savings account offers a set of features with similar interest rates. However, there is little variation, and also, it can not be customized to meet your financial needs, whereas fixed deposits are customizable to suit all kinds of financial needs, both short-term and long-term.

Fixed deposit tenure ranges from 7 days to 10 years, and it offers the highest FD interest rates if the money invested in a fixed deposit account remains for longer periods. It also allows you to choose between cumulative and non-cumulative FDs based on your financial requirements. 

 

  • Save more money

 

There are several ways of saving money to be financially secured in case of contingencies. For instance, some people choose to limit their expenditures or draw budgets to save money. Nevertheless, the most effective way to save money is by investing in financial instruments that ensure growth without affecting the principal amount. 

The fixed deposits help investors save money. However, there is a premature withdrawal penalty for withdrawing some of the funds before maturity. 

 

  • Benefits to senior citizens 

 

Senior citizens rely on low pensions post-retirement, and with the absence of an income, they are the ones who benefit most from fixed deposit schemes. Senior citizens can meet their post-retirement financial needs due to the highest FD interest rates offered by the banks. 

Liquidity option

In times of financial emergency, when you require urgent funds, you have the freedom to withdraw cash from your savings account without incurring losses, Whereas if you withdraw from a fixed deposit account before maturity, you have to incur a premature withdrawal penalty. 

In short, FD accounts offer guaranteed returns with the safety of principal amount, ad, therefore, it is a better way to invest your idle money and be financially secured.