Many people find it hard to choose between a savings account and a fixed deposit to invest their money in the interest of time or money. There is no clear-cut answer, but some guidelines would help you make the decision easier.
Before opting for any of the two investments, first look at the amount you would be investing. It is said that a large sum of money can do a lot of damage, as it could lead to severe inflation if you invested it in fixed deposits on the wrong date.
While FD account usually offers fixed interest on fixed deposit accounts, there is only a feasible interest rate on savings. Still, it has some flexibility as far as paying is concerned. With credit cards, on the other hand, you have more flexibility as they generally offer trading bonuses and interest rates adjusted from time to time.
The Advantages of Choosing Savings Account
The following are some advantages of having a savings account as compared to a fixed deposit:
Saving accounts do not incur any charges as it is a free service offered by banks and has FD accounts.
An individual can easily withdraw from the savings account but cannot withdraw from the fixed deposit as the money has been locked into the FD.
Interest paid on deposits is usually more than 25% of the amount deposited per annum. In contrast, interest paid on a fixed deposit typically ranges from 4% – 5%. This means that there’s a better opportunity for increasing your investment based on an interest rate alone.
Another aspect that you need to examine is the amount of money you will save every month. Fixed deposits work on the principle of time; they give out interest over some time. This means that the longer the duration, the higher your monthly payment will be, but it also means that you would not be able to withdraw your money until the accounting period is over.
Fixed Deposit vs. Savings Account: Which One Is More Flexible?
As the name suggests, the interest rates offered by a fixed deposit and savings account vary. The fixed deposit presents a higher FD interest rate than a savings account; however, it is not liquid, unlike the latter.
Furthermore, if you are looking for parking money for short-term financial goals, saving accounts are best suited to your needs.
It is essential to note that both these investment options give you a chance of earning interest. The only difference with the fixed deposit is that this interest accrues over time, unlike in the case of a savings account. A liquid investment like SIP (systematic investment plan) also gives an excellent return on investment (ROI), unlike these two options, which are not fluid.
Comparison
A savings account is an investment option that allows you to earn more on interest paid into that account with the highest FD rates. With this, you can enjoy the benefits of the compounded interest that the savings account offers.
However, there are certain conditions where fixed deposit becomes a better investment option for self-employed individuals, earnings of housewives, and low-income families. Fixed deposit generally gives higher returns than a savings account because they are safer investments.
Final Verdict
It is therefore advisable for people with risk appetite or medium-term goals to invest in fixed deposits. In contrast, people with short-term needs should opt for savings accounts, effectively earning interest on their money every day without any risk involved in case things go wrong.
