Savings Account vs. Fixed Deposit: Making Smart Investment Choices

Given that savings accounts and fixed deposits are two of the most common savings instruments, there is often a debate on which is better. Therefore, we are covering the different aspects of savings accounts and fixed deposits to clear the air and help you decide what is right for you. So, let’s begin by understanding their basic functions. 

Savings account

This is a secure financial tool where you can deposit money, earn interest, and withdraw funds whenever necessary. You can open a savings deposit account at financial institutions and banks, such as Kotak811. They offer a moderate interest rate.

Fixed Deposit

Fixed Deposits are a type of financial product offered by banks, post offices, and non-bank financial institutions. As the name implies, the deposit amount and interest rate remain constant for the term. If you invest in an FD, you can also save up to ₹1.5 lakhs in tax with fixed deposits under Section 80C.

Key differences between savings accounts and fixed deposits:

	Savings account	Fixed deposit (FD)
Meaning	A savings account is a financial product that allows you to deposit funds and earn return on unused account balance.	A fixed deposit is a financial instrument that pays interest on maturity.
Intend of opening	The purpose is to save money and keep accumulated funds in a safe place.	The primary purpose of fixed deposits is to earn interest on lengthy investments.
Interest rate range	Moderate	Higher
Deposit proof	Passbooks are available to map transactions.	You get a fixed deposit receipt.
Tenure	There is no fixed lock-in period. You can withdraw funds at any time.	There is a fixed lock-in period and there are penalties if you ask for early withdrawal. The tenure ranges from 7 days to 10 years.
Withdrawal limit	You can withdraw funds without any restrictions as long as the balance stays at the minimum.	You can withdraw only once the tenure is over.
Liquidity	High liquidity, you can access your funds easily.	Limited liquidity due to fixed tenure.
Any advantages for senior citizens	Many banks offer discounts on savings accounts.	They can receive higher interest rates.

Reasons to choose savings accounts 

-Safe place for keeping your money

-Easy access to funds

-Can make payments

Reasons to choose fixed deposit 

-Get assured returns on maturity

-Tenure is flexible

-Automatic renewal is available

-Get credit against FD 

-Get tax benefits (under Section 80C) from Tax Saver FDs

Factors to consider when choosing between a savings account and a fixed deposit:

• Accessibility of Funds

Savings Account: Ideal for daily needs, you can withdraw money anytime.

Fixed Deposit: Best for long-term goals, money is locked in for a preset term.

• Financial Goals

Savings Account: Great for short-term and emergency funds.

Fixed Deposit: Perfect for long-term financial goals without immediate liquidity needs.

• Interest Rates

Savings Account: Offers lower interest rates but steady growth.

Fixed Deposit: Higher interest rates, which means more earnings over time.

• Risk Factor

Savings Account: Low risk; suitable for keeping your money safe and accessible.

Fixed Deposit: Low risk, but you must lock in your funds to get returns.

• Impact of Inflation

Savings Account: Lower returns might not always beat inflation.

Fixed Deposit: Typically offers better protection against inflation with higher interest rates.

Can a savings account be used as a fixed deposit? 

No, you cannot treat your savings account as a fixed deposit (FD). Therefore, you need to have separate accounts. However, you can book FDs with your savings account. You can transfer the desired amount for the chosen term using net banking or the mobile app of your bank account. 

Endnote

Besides savings accounts and fixed deposits, there is also a recurring deposit where you can save a fixed sum monthly. All three accounts make it easier to build a good savings habit. So, evaluate your needs and choose the option that best suits your financial goals, whether you require flexibility, higher returns, or structured savings.