If you are curious to know the difference between a savings account and a fixed deposit, this is your time to develop a deeper understanding of the two! Read this article to learn more about these accounts, the difference between the two, and which one is better for you.
What is a Savings Account?
A savings account is the beginning of anyone’s financial independence. Opening one gives you access to every basic and necessary banking service. People open savings account for various purposes.
Some want to save funds to achieve their short-term financial goal, while some want to take advantage of the interest rates that allow them to grow their money and reach their long-term goals.
What is a Fixed Deposit?
As the name suggests, fixed deposits are financial instruments where you can deposit your amount for a fixed time and get fixed interest rates throughout your tenure. Currently, the interest rate of an FD is between 2.50% to 6.65% for general citizens and 3% to 7.15% for senior citizens, and it is not volatile to the market.
Difference Between Savings Account and Fixed Deposit
Below is an overview of the point of differences between a fixed deposit and a savings account:
|
Savings Account |
Fixed Deposit |
|
|---|---|---|
|
Interest Rate |
The interest rate on your savings depends on the bank and the market. It usually ranges from 2.75% to 7%. |
The interest rate varies between 2.50% 6.65% for general citizens and 3% to 7.15% for senior citizens. |
|
Tenure Flexibility |
There’s no tenure. The account will run for a lifetime until you close it. |
The tenure can start from seven days to ten years. |
|
Emergency Loan |
You do not get any loans against a savings account withdrawal. |
You get an emergency loan against your FD in case of emergencies. |
|
Liquidity |
There are no penalties for early withdrawals. |
You can prematurely withdraw funds but have to pay the penalty. |
|
Tax Benefits |
There are no tax benefits for this account. |
FDs have a tax exemption under income tax section 80. |
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Interest Rate
Depending on the market and different banks, interest rates differ. Usually, fixed deposit accounts give a much higher interest rate than traditional savings accounts. However, with the onset of the neobank concept, high-interest rate digital savings accounts have started coming into the spotlight!
Today, as opposed to traditional savings accounts and even fixed deposit accounts, digital savings accounts offer better interest rates and give a 100% digital experience! And Freo's Digital savings account is exactly what every Indian millennial is searching for! Earn up to a 7% interest rate annually on your savings. Open a digital savings account with us and reach your short-term financial goals faster than you dreamt of!
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Tenure Flexibility
Generally, with a savings account, there is no fixed tenure period. You can run your savings account for a lifetime until you decide to close it. With FDs, you get a tenor of seven days to ten years. This means you can invest in multiple fixed deposits with different tenures.
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Emergency Loan Facility
When you open an FD with a bank, you can apply for a loan against it. So, you don’t require to apply for a separate personal loan in case of a financial emergency. It can act as collateral. Depending on your bank rules, you may even get a lower interest rate on the loan. There’s no such facility with a savings account.
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Liquidity
Savings accounts are some of the most liquid investments! There are no time limitations regarding when you can withdraw from your account. But yes, you can only withdraw limited funds at a time. This limit is set by your bank and is different for every bank.
You can make premature withdrawals from your FD, but you will have to pay penalties of 1 or 2% (depending on your bank’s limit) on the withdrawal amount.
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Tax Benefits
A regular FD won’t provide tax benefits. However, a 5-year tax-saving fixed deposit account will allow tax deduction under Section 80C. The tax deduction can be up to ₹1.5 Lakhs. With a savings account, you get tax benefits on the interest income. According to Section 80TTA, interest on ₹10,000 is tax-free, but anything after that is taxable.
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What’s Better - Savings Account vs Fixed Deposit?
A savings account is considered one of the best financial investments for every beginner. Any type of investment activity can be carried out, and in fact, every individual needs it! With a fixed deposit, you can create wealth and meet your financial goals; however, there’s a catch. FDs have lower interest rates compared to other investment options.
If you want to explore newer options, you can go ahead with a digital savings account. With Freo Savings, you can earn better interest rates on a zero-balance savings account and reach your goals faster!
- Up to a 7% interest rate
- Zero-balance account
- 100% digital experience
- Easy access to credit, shopping, and card products
- Completely safe and secured banking
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