Savings accounts and fixed deposits are the two most popular savings vehicles in India. Despite their widespread popularity, new investors remain confused about the FD vs. savings account debate and how to choose one over the other. Savings accounts are beneficial for safely saving money and making regular transfers and transactions. Fixed deposits, on the other hand, are designed to achieve financial goals with higher interest earnings. This article sheds light on the differences between FDs and savings accounts to help you make an informed choice as per your financial requirements.

• Savings accounts are liquid accounts that hold the account holder’s saved funds for unexpected emergencies and general transactions.
• FDs are safe investment avenues where investors deposit lump-sum amounts for a fixed tenure and earn guaranteed interest at a predetermined rate.
• Savings accounts and FDs differ in terms of their interest rates, tenures, liquidity, and purpose.

A fixed deposit is a financial product where you can deposit a lump-sum amount of money for a predetermined period and earn fixed interest on the sum. Generally, FDs offer higher interest rates than savings accounts, ranging from 6%-8% p.a. The interest rate prevalent on the day of opening the deposit account gets locked in for the entire duration. In cumulative FDs, the principal plus interest is paid to the depositor on the maturity date. Non-cumulative FDs offer periodic interest payouts at a frequency of the depositor’s choosing. You can consider investing Bajaj Finance Fixed Deposit. With a top-tier AAA rating from financial agencies like CRISIL and ICRA, they offer one of the highest returns, up to 8.60% p.a.

A savings account is a simple deposit account that can be opened at any private or public bank. Savings accounts are designed to help depositors park their saved funds in liquid accounts to ensure easy accessibility at times of need. Generally, savings accounts offer nominal interest on the deposited funds, ranging from 2.5%-3%. According to Section 80TTA, interest on savings accounts is tax-free up to Rs. 10,000 annually. Any additional interest income earned on the saved funds beyond this limit is subject to taxation as per the assessee’s tax slab.

If you still need clarity on the fixed deposit vs. savings account debate, here’s a comprehensive breakdown that can help. The following table sums up the differences between fixed deposits and savings accounts to help choose between the two:
 

Both FDs and savings accounts help you deposit funds in safe investment avenues and earn interest on the deposited funds. However, both serve different purposes. FDs offer higher interest rates and capital safety, making them suitable for risk-averse investors seeking stable returns over the long run. However, FD accounts also come with limited liquidity since early withdrawals attract penalty charges. In contrast, savings accounts help investors park their rainy-day funds in a liquid account. Although savings accounts offer lower rates of interest, they offer convenient access to funds at any time, making them ideal for emergency savings and everyday transactions.

In a nutshell, the differences between an FD and a savings account are many and varied. The above table sums up the FD vs. savings account debate in detail to offer a quick comparison between the two. While FDs are safe investment avenues that offer high interest earnings, savings accounts are simple bank accounts that offer easy liquidity during urgent cash crunches. Both FDs and savings accounts have a role to play in your financial journey. While opening a savings account is the first step to money management, creating FD accounts is a step towards adding a safe asset to your portfolio for stability. In the end, choosing a side in the FD vs. savings account debate is all about your personal goals and objectives. However, having both included as steps on your financial plan is always prudent.