7 Reasons Why Fixed Deposits are Better Than a Savings Account
A savings account offers you no limit to the amount you can deposit. There is no fixed tenor, there is no fixed rate of interest, there is no benefit of depositing a larger sum, there is no TDS on interest earned, there are no lock-in periods and no real tax savings on offer. A fixed deposit, on the other hand, may or may not have an upper limit for the deposit based on the lender. It also has a fixed tenor, a fixed rate of interest, which varies according to the amount deposited, age of the depositor and duration, have lock-in periods, have their interest subject to TDS but also offer tax saving FD accounts, and may be used to avail loans.
The advantages of a fixed deposit vs. savings account can be summarized in the following way:
An FD gets you into a habit of saving
Having a fixed deposit account means not being able to withdraw money until you reach the account maturity. While this may initially prove to be difficult, you will soon get used to it, and develop a habit of saving. In a savings account you can withdraw money whenever you want and this fosters indiscipline when it comes to savings. Of course, you can break an FD in the time of emergency, but at the risk of getting lower returns.
An FD ensures that you earn a good return
As compared to a savings account, you get to earn interest in a fixed deposit account, which is higher than what you earn in a savings account. So not only do you save in a fixed deposit account, you also make money.
An FD assures returns
If you invest in a fixed deposit you are sure to get returns on your funds, instead of letting them lie idle in a savings account. Until your maturity period expires, you are bound to get a fixed amount of interest on your investment in a fixed deposit. In a savings account, though you get interest, it is negligible as compared to a fixed deposit.
An FD allows you to easily avail loans
You can avail loans up to 80-90% of the value of money deposited in your fixed deposit account. In a savings account, this would not be an option, as you would have to apply for a loan separately and cannot avail loans against your savings account.
An FD allows you an investment tenor of your choice
Depending on your requirements, you can choose a tenor from 12 months to 60 months based on your unique needs and wishes. In a savings account you don’t have to wait until maturity to withdraw your money, but neither do you get to earn in the form of interest.
An FD doesn’t limit you in terms of number of accounts
If your purpose of investing in a fixed deposit account is saving for something big, and there is more than one thing you need to save for, you are free to make more than one fixed deposit account. Saving for something big can never be done in a savings account, since the ability to withdraw money from it gives you an urge to spend and doesn’t give you a substantial interest either.
An FD allows you to have a fall back or fail safe
The benefits of having a fixed deposit account are many, but the most important one is that it gives you a fall back, which comes in handy at the time of a cash crunch or for a future investment. A savings account in contrast, is used on a daily basis and will not offer you a fail-safe in times of need.
Additional Read : Pros and Cons of Fixed Deposit
As an investor, you have a lot to gain from investing in a fixed deposit, as the points above clearly illustrate. When it comes to choosing your fixed deposit account, find a lender than you have easy access to, which has stable FDs with high security ratings and offers you a good interest. Try Bajaj Finserv, which has over 200 locations across India, has AAA/Stable Rating by CRISIL and MAAA (Stable) Rating by ICRA, allows you to choose an investment tenor based on your needs and offers both cumulative and non-cumulative FDs.