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Comparing Fixed Deposit and Activ Money Savings Account: Understanding the Key Differences
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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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When it comes to parking your funds, you may think of either choosing a Fixed Deposit (FD) or a savings bank account. However, with the ActivMoney savings bank account, which is a relatively innovative financial product, you need to relook these two options before making a decision.
An ActivMoney savings account provides you with the dual benefits of high returns and high liquidity. Its returns are higher than a standard savings bank account because it comes with the auto-sweep feature where excess money in the bank account is automatically transferred to a fixed deposit account. However, unlike a traditional FD, the access to your funds in the ActivMoney account comes without any restrictions or penalties.
But is the ActivMoney savings account better than an FD? Read on to know the key differences between both financial products to make your choice.
Regular FDs offer predictable returns at a fixed rate of interest. As the major goal of standard FDs is capital preservation and generation of satisfactory returns, they often fail to secure inflation-beating returns. Not only this, returns come at the cost of liquidity, since you cannot access your funds before the FD tenure is over without paying a penalty.
An ActivMoney savings bank account is more competitive than standard bank accounts owing to its auto-sweep facility, which parks idle money of over a predetermined limit into a potentially higher yielding FD. You can also access your funds at all times – there is no lock-in period or penalty on premature withdrawal.
Opening an FD is a straightforward procedure but managing multiple FDs with distinct tenures may be cumbersome. On the other hand, ActivMoney savings accounts provide higher convenience when it comes to managing funds. The auto-sweep facility manages surplus money efficiently, lowering the requirement for constant manual interventions.
If your ActivMoney savings account balance surpasses Rs 25,000, the additional funds are transferred automatically to a 180-day FD, in multiples of Rs 5,000. Hence, your funds are optimally utilised at all times without you needing to keep constant track.
FDs come with a fixed tenure, and making any premature withdrawal before the completion of the tenure may attract penalties and lead to reduced interest earnings. This lack of liquidity in regular FDs may be a drawback for those requiring instant access to their money during financial exigencies.
The ActivMoney savings bank account provides higher liquidity than bank FDs. The auto-sweep mechanism permits funds in FDs to be available readily when required without incurring any penalty, thus offering greater flexibility. In fact, when your ActivMoney account balance falls below the predetermined threshold, funds from the linked FD will automatically be transferred back into the savings account.
Conclusion
The ActivMoney savings bank account seamlessly combines the advantages of a standard savings account with the benefits of traditional fixed deposits. As a result, the question of what to pick – an FD or an ActivMoney savings account – is no longer relevant once you understand the unique features of the ActivMoney account.
With its auto-sweep facility, this account not only holds the potential for competitive returns but also provides unrestricted access to funds. This is why the ActivMoney savings bank account is the perfect option for those looking to maximise returns while maintaining liquidity.
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