Fixed Deposit vs Savings Account – Which is Better Option?

by Nikesh | Last Updated On October 27, 2022

Understand Fixed Deposit vs Savings Account – Which is Better Option?

Here we will Understand Fixed Deposit vs Savings Account – Which is Better Option?

Fixed Deposit vs Savings Account

Table of Contents

Fixed Deposit Vs Savings Account: Definition

Let us first understand the definition of a Bank Savings Account and a Fixed Deposit:

Bank Savings A/C

A Savings A/C is the most common and basic type of account that one can open with any bank. It allows you to deposit your money where it remains safe. You can withdraw your money at any point of time by visiting the Bank Branch using a Cheque or from an ATM. You also get a Fixed Rate of Interest on the Amount of money that you deposit and leave in your A/C.

Fixed Deposit

A fixed deposit allows you to invest your money in the Savings A/C for a fixed term – 7 Days to 10 Years. The Higher the Term, the Higher Interest Rate you will Earn. The interest rate on a Bank FD is always higher than Interest on a Normal Savings Account.

Savings Account Vs Fixed Deposit: Guaranteed Returns

Fixed interest rates are provided by both savings accounts and fixed deposits.
You can add or remove funds from your savings account whenever you want. You will receive a fixed interest rate on savings accounts, but there is no set time limit.
You must place your funds into a fixed deposit for a set amount of time (Term Period). You will receive the principal amount invested plus interest when the investment reaches its maturity date.

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Savings Account v/s Fixed Deposit: Comparison

Deposit	Savings A/C	Fixed Deposit
Interest Rate	4% (Max)	4% – 8%
Time Limit	Not Fixed	7 Days to 10 Years
Amount Required	Not Fixed	Min 5K to 10 Cr
Withdrawal	Anytime	On Maturity
Loan Facility	NO	Available

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Savings Account Vs Fixed Deposit: The Difference

Term: Both savings account and fixed deposit earn interest. However, there is NO Fixed Terms for a Savings Account. We can Deposit or Withdraw our Money at any Point of Time.
On the other hand, in a fixed deposit, we must deposit money for a predetermined amount of time, and withdraw only upon maturity. We will receive the original amount deposited plus interest.
Interest Rate: You will receive 4% interest for a fixed deposit that is made for a minimum of 7 days. The time period and the amount deposited both affect the interest rate. Fixed Deposits offer higher interest rates than savings accounts. Banks typically offer 4% return on savings accounts, however some offer even 7%. Interest rates are influenced by banks.
Loan Service: In contrast to fixed deposits, where banks offer loans against deposits, savings accounts do not offer this option.

FAQs: Fixed Deposit vs Savings Account

Is fixed deposit and savings account same?

NO, a Fixed Deposit and a Savings Account are NOT Same. In order to open a Fixed Deposit, you First need to Open a Savings A/C with a Bank.

A savings account allows you to deposit or withdraw any amount at any time.
On the other hand, a Fixed deposit has a fixed lock-in period. You cannot withdraw your money before maturity. If you try to do, you will have to pay some penalty.

What is the difference between deposit and savings account?

The BASIC Difference between a Fixed Deposit and a Savings Account is "Lock-in Period".

While there is NO Lock-in Period for a Savings A/C, there is a Fixed Lock-in Period in Case of a Fixed Deposit. This Period (Term) can be from 7 Days to 10 Years.

Also Interest Rate on a Bank FD is always Higher than a Normal Bank Savings A/C.

Is it good to keep money in FD?

YES, Of course. It is the BEST Risk-Free Investment Option, especially for Retired People and Senior Citizens.

What are the disadvantages of fixed deposit account?

Disadvantages of a Bank FD are:

Lock-in Period: You cannot withdraw your money until maturity. This means there is NO Liquidity with a Bank FD.
Low returns. While FD offers a guaranteed return, it is comparatively lower than Equity Investment.
Income Tax: Interest earned on a Bank FD falls under taxable slab of your income. So, you have to pay Tax on the Interest that your Earn on your Fixed Deposit.