6 Advantages Of Fixed Deposits Over Savings Accounts
“What is fixed deposit and how is it different from a savings account?” – are common questions by many consumers who get confused between fixed deposits and savings accounts and believe that the only difference is that the funds are not available.
However, Fixed deposits have many nuances and advantages over savings accounts.
Here’s a quick rundown of six main advantages.
Higher Interest Rates
Both fixed deposits and savings accounts offer interest. However, the fixed deposit investment instrument is designed to offer more attractive interest rates. Even if you consider inflation and are looking at a tenure of one year, fixed deposits perform better than the average savings deposit.
Hence, it is advisable to have fixed deposits as a part of your investment portfolio early on.
If you are a senior citizen, you get an additional percentage of interest. Before investing, keep an eye out for the highest fd rates in India.
Helps To Grow Investments
As you start building your corpus via investments, fixed deposits have a special place in the portfolio.
On the other hand a savings account is not considered to be an investment instrument, but merely an account where you can store your money.
Every investor tends to have a fixed deposit in their portfolio, to help balance risk with the rewards. Being a risk-free instrument, it is emerging as a favorite despite all the new instruments that promise quick returns.
Secondly, the guaranteed nature of the returns can put the investors’ minds at ease.
Opportunity For Income Generation
Fixed Deposits offer a unique opportunity for interest payouts at a pre-determined interval – monthly, quarterly and annual payouts. This allows you to have a fixed source of income.
This is especially useful for those who are senior citizens, who have no other source of income, and can use it for their monthly expenses. Non-cumulative Fixed Deposits usually start with a higher principal than cumulative Fixed Deposits.
Not Impacted By Markets
Interest rates for fixed deposits and savings accounts keep shifting based on market fluctuations.
However, once you put away your money in a fixed deposit, the interest rate will not change for the tenure of the deposit.
It remains the same as during the time of the deposit, and the maturity will factor in the same rate when being returned to your savings account. So, do proper research to understand fd rates in India when it comes to interest.
Fixed Deposits Offer Flexibility
“What is fixed deposit flexibility?” is another common question. Well, savings accounts usually offer a blanket interest rate, which fluctuates with market shifts. On the other hand fixed deposits incentive’s the investors based on various permutations and combinations.
For example, longer deposit tenures come with larger interest rates. Compounding is offered for cumulative deposits. Some deposits also offer a SIP feature that allows you to increase your deposits every month.
Reduces Unnecessary Spendings
Once you invest in a fixed deposit, the funds are inaccessible during the entire tenure of the instrument.
This ensures that you do not end up spending the money and that you have funds stashed away for a rainy day or your retirement funds. The prospect of a withdrawal penalty also ensures that fixed depositors do not withdraw the amount early.
On the other hand, with savings accounts, your money is easily accessible. If you have not built constructive money habits, then you can end up spending all the accessible money. Putting an amount away in a Fixed Deposit ensures you also build your savings.