How Is Fixed Deposit Better Than Savings Account
Pratik Mehra had been working for many years now. He was a diligent saver all his working life. He put his money away in different savings accounts. He mentioned this to his friend, Sarthy while discussing savings for retirement. Sarthy told him that putting away money in Fixed Deposit (FD) is a better option. Sarthy had put away money in FDs, which helped him earn higher returns because of higher FD interest rates.
And that’s not all. Let’s take a look why an FD is better than your savings account:
Fixed Deposits Have Higher Returns in The Short-Term:
Invest in an FD to meet your short-term financial goals. The returns on short-term deposits are considerable. Even if you invest for a few months, you earn more than you would from your savings accounts.
Fds Have Higher Interest Rates:
An FD is a smarter alternative to savings accounts. This is because of the difference in the interest rates. Financial institutions offer higher rates for FDs in comparison to savings accounts. Your money grows more when locked in for a fixed tenure. It makes good financial sense to invest in FDs.
They Give You the Advantage of Compounding:
With FDs, you get higher returns, thanks to the effects of compounding. The interests on FDs are compounded on a quarterly, half-yearly, or an annual basis. Say, you deposit Rs 1,000 for 10 years, at 10% interest compounded annually. At the end of the first year, the balance rises to Rs 1,100. And the next year, the you earn 10% interest on Rs 1,100, i.e, Rs 110. So, your balance increases to Rs 1,210, and not Rs 1,200. Thus, your money keeps growing every year.
Senior Citizens Get Special Rates:
If you are above the age of 60, you are eligible for the senior citizens’ interest rate. This is usually higher than the normal interest rates. So, you can earn better returns on your investments.
There Are More Options to Choose From
There are many FD schemes and options from the different institutions. You have various tenure options and negotiable interest rates that you can choose from. Pick the one with the tenure and interest rate that best suits your financial needs. Choose a tenure that yields a certain amount of return to fulfil a financial goal.
You Can Get a Loan Against an FD:
You can avail loans or credit cards against your FDs. The FD acts as security. This can be used for emergencies. Your returns remain unchanged. You pay off the loan separately. It is cheaper than unsecured loans as well.
There Are Tax Benefits On Fixed Deposits:
There are no tax benefits associated with savings accounts. But a fixed deposit, especially when diversified, can offer tax benefits. If you invest up to Rs 1.5 lakh in 5-year FDs, you get tax deductions under Section 80C of the Income Tax Act. So, if you have more money, you can put it in FDs to avail a tax deduction.
The final word
You can draw your money any time you want with a savings account. You can have liquidity with a savings account. But the benefits of putting money away in an FD far outweigh the benefit of liquidity that savings accounts offer. So, make a smart financial decision. Put your idle money away in fixed deposits for better returns!