Your guide to deciding between an FD and a high interest savings account
When looking at investment options, consider those that provide maximum liquidity while ensuring safety for the spare cash yet earning a reliable return. The best investment options considering the above requirements are a Fixed Deposit or a high interest savings account.
A fixed deposit or a FD is a financial instrument that is provided by banks and NBFCs, which allows you to deposit money and earn interest until the maturity date.
High interest Saving Account
A savings account is one that offers higher returns than market rate on unused money that is deposited in the account.
Features of a Fixed Deposit
- Fixed deposit schemes come with various options and start with short tenors or say seven days or 12 months. They also offer different types of interest pay-out options such as on maturity or non cumulative FDs which offer interest pay-outs on a monthly, quarterly or annual basis.
- The interest offered in a FD is generally higher than the interest offered in a savings account.
- Setting up an FD is easy; one can be opened online though mobile banking.
- The investor needs to shop for the best FD interest rate as banks and NBFCs offer varying rates for the same fixed deposit.
- The depositor will also need to ensure that the Fixed Deposit chosen comes with a high safety rating to ensure security.
- A fixed deposit is easy to convert to cash and can be closed and transferred into a savings account in a day or less.
- Depending on the type of deposit there may be some loss of interest in case the deposit is withdrawn before maturity but FDs may be liquidated for cash when the need arises.
Features of a high-interest Savings Account
- Some banks offer interest rates on savings account balances that may be a little close to fixed deposit rates.
- With a saving account, there is always easy liquidity for the depositor.
- Generally, high interest rates on savings account balances are only offered when a high minimum balance is maintained in the account.
- With a high interest paying savings account, the depositor needs to read the fine print of the terms and conditions as any variation from the norm is likely to reduce the interest pay-out significantly.
While these investment options look similar, there is a significant difference between then. In the case of a fixed deposit, the money is not in the account of the investor and therefore the investor does not have direct access to the funds. This acts as a savings incentive to those who are likely to make purchases or tend to spend money quickly. In the case of a high interest paying savings account, the depositor has access to the funds at any time while the idle money earns a higher rate of return compared to a regular savings account.
Further, a fixed deposit provides additional assurance that the investor will receive the higher interest earnings as the investor receives a certificate from the bank of NBFC which details the investment made and the interest pay-out. In the case of investment in an FD, the investor can request for monthly interest pay-outs to meet the monthly expenses. In a high interest savings account, in case the minimum balance is not maintained, the rate of interest will be reduced by the bank. Finally in both cases interest earnings above Rs.10,000 will suffer TDS (tax deductions).
In conclusion, most investors find more benefits by investing a fixed sum in an FD for a short term to make their money grow. When shopping for the best FD scheme, don’t forget to consider NBFCs such as Bajaj Finserv, which offer high interest rates with additional interest for senior citizens. With an easy online application process that requires minimal documentation a fixed deposit account is easy to set up and manage. Always check the safety rating when investing in an FD!