Fixed Deposit vs. Savings Account: Know Key Differences

Know all the details about Fixed Deposit and Savings Account and which option you should choose to grow your money.
FD vs. Savings Account
4 mins
3 April 2024

Difference between Fixed Deposit and Savings Account

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 vs Savings Account

A savings account is a secure financial tool which allows you to deposit money, earn moderate interest, and easily withdraw funds when needed. Managed by banks under government supervision, it provides a safe option for account holders who might need liquidity of funds.

While FD generally offers higher interest rates than saving accounts. 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. FD involves investing a lumpsum amount over a chosen tenure, with interest paid upon maturity. Institutions like Bajaj Finance offer flexible tenures ranging from 12 to 60 months, with interest depending on the selected tenure.

2. Returns on each

Many private sectors and nationalised banks offering savings account provide interest earnings of up to 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 up to 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 8.65% 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 up to 7.65% p.a. Total interest payable to Ms. Kavita post maturity will be Rs. 6,800, which is nearly about Rs. 550 per month.

3. Benefits of FD over savings account.

The fixed deposit has several benefits over a savings account that are:

  1. High-interest rates
    While banks offer an average up to 3-5% p.a. interest on savings account, they offer comparatively higher interest rates up to 5-6% p.a. 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 8.65% p.a. on FDs.
    Check the interest rates on Bajaj Finance Fixed Deposit.
  2. Flexible payout
    Bajaj Finance also offers flexibility in terms of payouts on FD. It provides two types of payout options: 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 regular 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.

d. Tax Benefits

When it comes to tax benefits, it's important to note that savings accounts do not offer any tax advantages. In contrast, bank fixed deposits offer potential deductions under Section 80C of the Income Tax Act. However, it's crucial to consider that these deductions are applicable exclusively to tax saver fixed deposits, which come with a mandatory 5-year lock-in period. This means that if you choose to invest in a tax saver FD, you may enjoy tax benefits while also committing to a longer-term investment horizon.

e. Senior citizen benefits

Savings accounts can be a valuable choice for individuals with fixed incomes, and it's worth noting that several banks extend special benefits to senior citizens who maintain savings accounts. On the other hand, bank fixed deposit accounts often provide senior citizens with the advantage of earning higher interest rates, offering them an opportunity to significantly boost their savings. These tailored benefits aim to cater to the financial needs of senior citizens, whether they seek accessibility and liquidity or are looking to maximize their returns through fixed-term investments.

Below is an overview of the point of differences between a fixed deposit and a savings account:

Aspect

Fixed Deposit

Savings Account

Interest Rate

Higher interest rate

Lower interest rate

Tenure Flexibility

Fixed lock-in period with penalties for early withdrawal

No fixed lock-in period, funds can be withdrawn anytime

Emergency Loan

No emergency loans available

Some accounts may offer overdraft or line of credit

Liquidity

Lower liquidity due to fixed tenure

High liquidity with easy access to funds


FD rates for customers below 60 years

Interest rate

up to 8.40% p.a.

Minimum tenure

1 Year

Maximum tenure

5 Years

Deposit amount

Min- Rs. 15,000

Application process

Easy online paperless process

Online payment options

Net Banking and UPI


Senior citizen FD gets an additional 0.40% p.a. rate benefit.

Calculate your expected investment returns with the help of our investment calculators

Investment Calculator

SIP Calculator

FD calculator

SDP calculator

Gratuity Calculator

Lumpsum Calculator

FD rates for customers below the age of 60

Fixed Deposit annualised rate of interest for customers below the age of 60 is valid for deposit up to Rs. 5 crore (16 July, 2024) 

*Experience higher interest rate of up to 8.40% p.a. on a 42-month Digital FD, available exclusively on website and app.

Bajaj Finance Digital FD

New Product Launch
Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
42* 8.40% 8.09% 8.15% 8.23% 8.40%

Customers below the age of 60 – Special Period

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
18* 7.80% 7.53% 7.58% 7.65% 7.80%
22* 7.90% 7.63% 7.68% 7.75% 7.90%
33* 8.10% 7.81% 7.87% 7.94% 8.10%
44* 8.25% 7.95% 8.01% 8.09% 8.25%

Customers below the age of 60 – Regular Period

Tenure in
months
At maturity (p.a.) Monthly (p.a.) Quarterly (p.a.) Half yearly (p.a.) Annual (p.a.)
12 - 14 7.40% 7.16% 7.20% 7.27% 7.40%
15 - 23 7.50% 7.25% 7.30% 7.36% 7.50%
24 - 35 7.80% 7.53% 7.58% 7.65% 7.80%
36 - 60 8.10% 7.81% 7.87% 7.94% 8.10%

Frequently asked questions

What is a Fixed Deposit?

A Fixed Deposit (FD) is a financial investment option offered by banks and financial institutions, where you deposit a lump sum amount for a fixed period at a predetermined interest rate. The principal amount remains locked during the tenure, and you receive the interest at the end.

What is a Savings Account?

A Savings Account is a basic deposit account offered by banks to store and withdraw money conveniently. It provides limited interest on the account balance and offers easy accessibility for daily transactions.

Which is better, a savings account or fixed deposit?

The choice between a savings account and a fixed deposit depends on your financial goals. A savings account is suitable for liquidity and daily expenses, while a fixed deposit offers higher interest for a fixed tenure, making it ideal for savings and wealth creation.

Can a savings account be used as a fixed deposit?

No, a savings account cannot be used as a fixed deposit. These are two distinct types of accounts. To create a fixed deposit, you need to open a separate FD account and deposit a lump sum amount for a specific tenure.

Can we open an FD without a savings account?

Yes, you can open an FD without having a savings account with the same bank. You can choose a bank that offers FD services, open an FD account with them, and deposit the desired amount.

How many FD accounts can be opened?

You can open multiple FD accounts with different banks or financial institute. The number of FD accounts you can open depends on your financial goals, the funds available, and the terms and conditions of the banks or financial institute.

How much money can I keep in a fixed deposit?

The amount you can keep in a fixed deposit varies from financial institute to financial institute. With Bajaj Finance you can open an FD with just Rs. 15,000.

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Disclaimer

As regards deposit taking activity of Bajaj Finance Ltd (BFL), the viewers may refer to the advertisement in the Indian Express (Mumbai Edition) and Loksatta (Pune Edition) furnished in the application form for soliciting public deposits or refer https://www.bajajfinserv.in/fixed-deposit-archives
The company is having a valid Certificate of Registration dated March 5, 1998 issued by the Reserve Bank of India under section 45 IA of the Reserve Bank of India Act, 1934. However, the RBI does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company.

For the FD calculator the actual returns may vary slightly if the Fixed Deposit tenure includes a leap year.