Savings Account VS Fixed Deposit: Traditionally, there are 4 main types of bank deposits in India:

Current Deposit Account
Recurring Deposit Account
Savings Deposit Account
Fixed Deposits

In this article, we will analyze which option is better for a person based on his/her requirement to make more money – Savings or Fixed Deposit.

Most people make the mistake of keeping the money they don’t want, in a savings account, thinking about they can gain some interest on that money.

Although that is true, unless they need continuous access to that money, there are other ways in which they can get better interest rates. Fixed Deposit is one such way, and we will tell you about it in this article. But before going to Fixed Deposit, let’s see what is a Savings Account?

What is a Savings Account?

It is a normal bank account but gives us a small amount of return. Through this account, we are encouraged to save money. In this account, we can save money little by little. We also get interested in the deposited money. We can open this account alone or jointly. The interest rate on the account ranges from 4 to 6 percent. On the other hand, Senior Citizens get some relaxation in the interest rate.

Pros and Cons of Savings Account?

Pros

Gives Return- Although small, savings accounts give interest for the amount added.
Less money is required to start- A minimal amount is required to open a savings account (depending on the bank).
Allows liquidity- Savings accounts provide us liquidity. We can take out money from the account at any time.

Cons

Low-interest rate- Savings account gives very low interest compared to other accounts.
Minimum balance required- In a savings account, we have to maintain a minimum balance, otherwise bank charges a fee.
Interest rates change– Banks can change interest rates any time they want.

Now, let’s see what is a Fixed Deposit account?

What is a Fixed Deposit?

Fixed deposits allow us to invest funds for a fixed tenure and earn returns at fixed interest rates. The interest rate of FD is higher than the interest rate of savings accounts so that we can grow your savings more. A Fixed Deposit is a low-risk financial instrument, that helps us grow savings at fixed interest rates for a specific period.

Pros and Cons of a Fixed Deposit.

Pros

Safe and assured return- Fixed Deposit gives a fixed return on investment on a pre-determined tenure.
Higher return as compared to a savings account- The return on money is higher than what we get on a savings account.
Loans granted against Fixed Deposit- When we need some cash, instead of breaking a Fixed Deposit, we can take a loan against it.

Cons

Penalty on withdrawal- If we take out the amount before the maturity period, the bank charges a fee.
Tax on the interest gained- After a certain limit, we have to pay TDS on the interest amount we gained.