Do you want to make the most of your savings? Do you know how banks give you a bit of interest when you stash your cash in a savings account? Yeah, the rate is usually pretty low. But now, you have the option to invest in both savings accounts and liquid funds to get higher interest rates. Liquid funds work like savings accounts only. This means they offer the same kind of liquidity, but often with better growth prospects! So, how do you decide where to park your hard-earned money to get the maximum return on investment? This post is here to offer some clarity. It’s time to get into the age-old debate over liquid fund vs savings account.
Let’s weigh up the difference between liquid funds and savings accounts and figure out where to deposit your money for the best returns and security.
What is a Savings Bank Account?
It’s just a simple bank account where you can deposit money and withdraw it whenever you need it. You can withdraw funds from this account using cheques or ATM cards. One advantage of having a savings account is that the bank pays you interest to keep your money there.
This means you can keep your money secure while also earning some extra income without having to lock it away in a fixed deposit.
What are Liquid Funds?
Liquid funds are categorised as mutual funds. They are seen as low-risk and tied to the market. They invest in short-term assets, including commercial paper, certificates of deposit, and treasury bills, making them low-risk.
Their preference is typically for debt securities, with the potential of some short-term bonds. Liquid funds often avoid investing in equities, particularly those that are high-risk. However, it is essential to note that there is still a risk connected with liquid funds.
This is because potential fluctuations in interest rates and credit risks from the fund house’s assets can affect investor returns. This implies that, while they are typically less risky than other forms of mutual funds, such as equity or hybrid schemes, they don’t come without some element of uncertainty!
Difference Between Liquid Funds and Savings Accounts
Here’s a crisp table mentioning the unique features of both these investment options. It can surely help you decide which one you should choose – liquid funds or savings account!
| Feature | Mutual Funds | Fixed Deposits |
| Risk | Low risk | Risk-free |
| Minimum balance | Generally not required | Varies from bank to bank |
| Liquidity | High | High |
| Taxation | Capital gains tax applies based on the investment holding period. | Interest is applicable above ₹10000 |
| Lock-in period | None | None |
| Rate of return | 7% to 8% | Usually, provide around 4% |
Which One Should You Choose: Liquid Funds or Savings Account?
So, the decision between a savings account and a liquid fund is entirely up to you as an investor. Both choices are safe. However, liquid funds have a more enormous growth potential. Experts frequently advocate investing in liquid funds over savings accounts since they are more flexible and have no penalties or exit fees.
Furthermore, liquid funds often provide greater interest rates and can occasionally offer twice as much return as regular savings accounts.
Now, here’s the thing: a savings account is often regarded as one of the most significant financial investments for beginners because it allows for a variety of investing activities. It’s something that everyone needs!
In actuality, both of these instruments are essential for your financial development and security, so why pick just one? Instead, you might choose which basket receives the majority of your money eggs. But wait, what if you want to try new things and have the best of both worlds? Guess what? It is altogether achievable! With the Freo Savings digital account! Benefits of this account include:-
- Up to 7% interest rate
- Zero balance
- All-digital banking
- Easy access to credit facilities
- Shopping and card products
- Safety & security.
in India
