SAVE

Savings Bank Accounts v/s Fixed Deposits

Confused between a saving bank account and a fixed deposit account? Read below

Rohan’s father, a devoted banker, always educated him about the importance of savings. When Rohan demanded an opulent phone on his 18th birthday, his father proposed a deal to him; he will get the phone only if he promised to incorporate the habit of saving in his daily routine.

Being a banker’s son, the deal didn’t look bad to him; he knew he could easily start saving by opening a bank account. Since he had been longing for the phone, he wanted to be sure of what he was doing. That night, he made a careful study of different types of bank accounts . Here’s what he found out about saving bank accounts and fixed deposit accounts:

Meaning
A saving account is a bank account which is generally opened by salaried individuals. The main objective of a saving bank account is to encourage and promote savings.

A fixed deposit account is a bank account which requires a fixed sum of money to be invested for a fixed period of time.

Purpose
Salaried individuals or people with a fixed income open a saving bank account to save for a rainy day; whereas, large organizations and wealthy individuals opt for a fixed deposit account and park their idle funds there to earn interest.

Rate of Interest
A saving bank account offers a nominal rate of interest which varies from 4 to 6%.

The rate of interest for fixed deposits is higher than that of saving account. The interest rate is directly proportional to the duration for which the money remains invested; the longer the time period, the higher the rate.

Period
A saving bank account is continuous in nature. Deposits into this account can be made for any number of years. A fixed deposit account, on the other hand, is a onetime investment for a fixed amount of time. When the duration of your investment ends, the amount you invested will be returned to you together with the interest accrued thereon.

Withdrawals
Withdrawals are permitted under a saving account. However, these are subject to certain restrictions that vary from bank to bank.

A fixed deposit account, on the other hand, does not permit withdrawals until the expiry of the fixed period. Premature withdrawals attract penalties.

Minimum Balance
A saving bank account can be opened with a lesser amount as compared to a fixed deposit account. Many banks offer a zero saving bank account wherein your account balance can be nil. This, however, is not possible in case of a fixed deposit account.

Loan Facility
No loan facility is provided to saving account holders. Fixed deposit account holders can avail a loan of up to 75% of the deposit amount.

The Bottom Line
If you have a good amount of disposable income, you can opt for a fixed deposit account since it has a higher rate of interest. You can open a saving bank account if you have a fixed income and you want to ensure financial flexibility.