FD vs Savings Account - where can you grow your money

Know all the details about Fixed Deposit and Savings Account and which option you should choose to grow your money.
4 mins
12 Oct 2022

Savings account is the most commonly used instrument when it comes to saving excess money. This is mainly due to its ease of liquidating funds and even providing a modest interest. Unlike fixed deposit (FD), only banks are liable to provide savings accounts, and no NBFC can provide a savings account. Nowadays, FD has become more popular when it comes to parking your surplus funds. It is due to its higher interest rates and easy withdrawal of your funds during emergencies.

1. FD and Savings Account
A savings account is the financial instrument that allows you to deposit money and earn moderate interest. It is very easy to withdraw funds from savings account whenever you need it. Banks manage these accounts under federal government supervision and also carry limits on withdrawals. This is a safer option to park your funds that requires liquidity and even earns you a decent interest.

If you have excess money sitting idle in your account, fixed deposit is your shot. Both banks and Non-Banking Financial Companies (NBFC) provide FD with varying interest rates. NBFC usually provides 1-2% higher interest rates than bank FD. You can create multiple FDs at different intervals to create a stream of constantly maturing FDs. This method, known as laddering, helps you earn a regular income without affecting your principal amount.

In FD, you invest a lump sum money over a specific tenure of your choice, and it offers interest upon maturity. Financial institutions like Bajaj Finance offer flexible tenures ranging 12-60 months. The interest payable depends on the tenure that you select.
Open an FD

2. Returns on each
Many private sectors and nationalised banks offering savings account provide interest earnings of 3-5% p.a. Apart from these, savings account offers hassle-free withdrawal of funds during emergencies. The interest earnings here can help achieve your short-term financial goals. For instance, Mr. Abhishek maintains a fund of Rs. 1 lakh in his savings account. Consider interest payable on the savings account to be 4% p.a. You can calculate monthly interest as:

Monthly interest = (Daily balance*No. of days*(Interest Rate/100))/Day in year

Monthly interest = (1,00,000*30*(4/100))/365 = Rs. 328.77

This implies that Mr. Abhishek will get Rs. 328.77 in his savings account every month, if he maintains a balance of Rs. 1 lakh throughout the year.

Institutions like Bajaj Finance offer you to invest in an FD with a minimum of Rs.15,000, and a maximum return of up to 7.95% p.a. You can also choose to withdraw money before maturity after a 3-month lock-in period. In this case, you need to bear an interest loss. For instance, Ms. Kavita wants to invest Rs. 1,00,000 in FD for one year. Consider interest payable at 7.05%. Total interest payable to Ms. Kavita post maturity will be Rs. 6,800, which is nearly about Rs. 550 per month.

Calculate your returns on fixed deposit using FD calculator.

3. Benefits of FD over savings account.
The fixed deposit has several benefits over a savings account that are:

a. High-interest rates
While banks offer an average of 3-5% interest on savings account, they offer comparatively higher interest rates of 5-6% on FD. However, NBFCs offer even higher interest rates on FD than banks. Institutions like Bajaj Finance offer a maximum interest rate of up to 7.95% p.a. on FDs.

Check the interest rates on Bajaj Finance Fixed Deposit.

b. Flexible payout
Bajaj Finance also offers flexibility in terms of payouts on FD. It provides two types of payout schemes: cumulative and non-cumulative.

A cumulative FD allows you to make a one-time lump sum investment for a set period and earn interest upon maturity. This is the best choice if you have a sizeable money to invest for growth and desire higher returns.

If you select the non-cumulative option, you will be paid interest on a periodic basis. You can choose a payout frequency of monthly, quarterly, half- yearly, or yearly. It is an excellent option for people whose financial goals depend on a steady stream of income.

You can calculate the returns on FD using an FD calculator.

c. Special tenure
NBFCs offer higher interest rates on FD is a fact. But institutions like Bajaj Finance also offer some special interest rate for some specific tenures.

 

Cumulative

Non-cumulative

Tenure in months

At Maturity

(% p.a.)

Monthly

(% p.a.)

Quarterly

(% p.a.)

Half Yearly

(% p.a.)

Annual

(% p.a.)

15*

6.95%

6.74%

6.78%

6.83%

6.95%

18*

7.00%

6.79%

6.82%

6.88%

7.00%

22*

7.10%

6.88%

6.92%

6.98%

7.10%

30*

7.30%

7.07%

7.11%

7.17%

7.30%

33*

7.30%

7.07%

7.11%

7.17%

7.30%

39* 7.60% 7.35% 7.39% 7.46% 7.60%

44*

7.70%

7.44%

7.49%

7.56%

7.70%

 
FD special interest rates for senior citizens

Tenure in months

At Maturity

(% p.a.)

Monthly

(% p.a.)

Quarterly

(% p.a.)

Half Yearly

(% p.a.)

Annual

(% p.a.)

15*

7.20%

6.97%

7.01%

7.08%

7.20%

18*

7.25%

7.02%

7.06%

7.12%

7.25%

22*

7.35%

7.11%

7.16%

7.22%

7.35%

30*

7.55%

7.30%

7.35%

7.41%

7.55%

33*

7.55%

7.30%

7.35%

7.41%

7.55%

39* 7.85% 7.58% 7.63% 7.70% 7.85%

44*

7.95%

7.67%

7.72%

7.80%

7.95%