Investments are one the greatest and most rewarding tools for creating wealth nowadays. For this purpose, it is necessary to have an investing platform that is secure and easy to handle.
Savings accounts and fixed deposit accounts are two such platforms that allow investors to earn fixed returns easily despite the instability of market situations.
Key Takeaways
- Savings accounts provide easy access to funds and earn interest, while fixed deposit accounts offer higher interest rates but require a fixed-term commitment.
- Fixed deposit accounts impose penalties for early withdrawals, whereas savings accounts allow for more flexibility.
- Savings accounts promote regular transactions and money management, while fixed deposit accounts encourage long-term saving and financial discipline.
Savings Account vs Fixed Deposit Account
In a savings bank account, an account holder is permitted to deposit any sum of money at any time. The rate of interest in a savings account is as low as 4-6%. In a fixed deposit account, an account holder is allowed to deposit a fixed sum of money during a fixed period. It has a high rate of interest.
A savings account is a platform that allows a person to save money that he/she doesn’t need or plan to spend at the current moment. The money may be deposited as per the wish of the account holder.
Most of the time, such an account is opened in order to stash many for a specific purpose or goal. A fixed deposit account is a platform for people to earn higher interest on deposited money than they do through a savings account.
However, the account holder is required to deposit a fixed amount of money either monthly or annually until the given maturity date. Such accounts are provided by banks or NBFCs.
Comparison Table
| Parameters of Comparison | Savings Account | Fixed Deposit Account |
|---|---|---|
| Meaning | A savings account is a bank account in which the account holder can deposit any amount of money at any time. | A fixed deposit account is a bank account in which an account holder must deposit a fixed amount of money during a fixed tenure. |
| Objective | Users open a savings account to save up money for a specific purpose or goal. | Users open a fixed deposit account to earn interest on funds that are idle. |
| Rate of Interest | The rate of interest for such an account ranges between 4 to 6 per cent. | The rate of interest for such accounts is higher than that of savings accounts. |
| Duration | A savings account is continuous in nature. | A fixed deposit account is a one-time investment for a fixed period of time. |
| Withdrawal | An account holder can withdraw money at any time. | An account holder is not allowed to withdraw money until the end of the tenure. |
| Minimum Balance | A savings account has a low minimum balance. | A fixed deposit account has a higher threshold for minimum balance. |
| Loan | The account holder is not provided with any loan facility. | The account holder can get a loan of up to 75 per cent of the amount that has been deposited. |
What is Savings Account?
A savings account is a bank account in which the holder can deposit money at any time. The amount deposited can be as per the wish of the holder.
However, such an account cannot be used to make purchases or be used with a debit card. Nonetheless, an account holder can withdraw money at any point in time.
Savings accounts are opened by people who have a specific purpose or goal for which they are stashing money.
Most people always deposit a certain amount of their income so that future expenses can be taken care of without much burden. A perf of opening such an account is that the deposited money earns a certain percentage of interest.
The rate of interest depends on the bank in which the account has been opened. Savings accounts are mostly free to open, especially those that are made with banks, community banks or credit unions.
However, a limitation of such an account is that the holder is not allowed to avail of a loan against the deposited money. It is still safer to open a savings account that stashs physical cash. The money deposited is easy to access at any ATM or with the bank’s teller.
What is Fixed Deposit Account?
A fixed deposit account is an account in which the holder is required to deposit a fixed amount of money for a fixed period of time.
Such an account is opened by large organizations or wealthy people who seek to earn interest on funds that are idle. The more the amount of money, the higher the interest earned.
Moreover, such accounts have a higher rate of interest than a savings account does.
Once the money is deposited, it cannot be withdrawn or used for making purchases. The account holder can only withdraw it once the tenure of the fixed deposit has ended.
However, a perk of opening such an account is that the holder can avail a loan of up to 75 per cent of the amount that has been deposited by them.
Opening such an account may or may not require the creation of a separate account. However, at times, a savings account can also be converted into a fixed deposit account.
Another advantage of opening this account is that the holder can save a certain amount of tax with it. However, this can only be done when a certain kind of fixed deposit account, namely a Tax-saving fixed deposit, is opened.
Main Differences Between Savings Account and Fixed Deposit Account
- A savings account is a bank account in which the account holder can deposit any amount of money at any time, whereas a fixed deposit account is a bank account in which an account holder must deposit a fixed amount of money during a fixed tenure.
- A savings account is opened for a specific goal whereas a fixed deposit account is opened to earn interest.
- Saving accounts have a low rate of interest, whereas fixed deposit accounts have a higher rate of interest.
- A savings account is continuous, whereas a fixed deposit account is a one-time investment for a particular period.
- Money can be withdrawn from a savings account, whereas a fixed deposit account does not allow this.
- A savings account has a low minimum balance, whereas a fixed deposit account has a higher minimum balance.
- A savings account holder cannot avail of a loan against the deposit, whereas a fixed deposit account holder can.
- https://academic.oup.com/jeea/article-abstract/17/1/131/4981453
- https://www.sciencedirect.com/science/article/pii/037842669290004J
Last Updated : 09 September, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
This article provides a comprehensive comparison between savings and fixed deposit accounts. It is very informative and helpful for those looking to invest.
The detailed comparison table is a great visual aid for understanding the differences between savings and fixed deposit accounts.
I’m not entirely convinced by the limitations of the savings account described here. It seems like there are better options out there for earning returns on your money.
The distinction between a savings account and a fixed deposit account is clearly outlined here. A great resource for anyone looking to understand these investment options.
I found the information about fixed deposit accounts very interesting. The ability to earn higher interest and get a loan against the deposited amount is a compelling advantage.
It’s great to see a detailed breakdown of the differences between savings and fixed deposit accounts. Really useful information for those considering their investment options.
This article provides a clear understanding of the advantages and disadvantages of both types of accounts. Great insight for investors.
The detailed explanations about both savings and fixed deposit accounts are very helpful for those seeking to make smart investment choices.