When it comes to habits of savings, India stands on the second slot right after China in the gross domestic savings. India among many other countries is known to invest as well as to save their funds in distinct banks and financial institutions to earn from the interest amount.  The three most common and traditional types of savings instruments in India are – savings accounts, fixed deposits, and recurring deposits. Each of the mentioned has its advantages, however in this article we will be understanding the difference between fixed deposit and savings account when it comes to investor preference.

What is Fixed Deposit (FD)?

Fixed deposits are majorly known as term deposits that an individual can hold in the bank or financial institution for a fixed period of time or tenure. An individual can invest the desired amount for periods ranging from a few months to about 10 years. In this period of time, you earn an assured interest applicable for the tenure as the rate increases with an increase in the term.

What is a Savings Account?

A savings account can be called a ticket to undertaking all types of banking transactions that are possible in the Indian economy. It helps in saving money in a particular account and earn interest on the same.   An individual can use the many components of a savings account to obtain your monthly salary or deposit earnings from their enterprise, and you can withdraw money from this account for your daily expenditures. The amount overdue in your account earns a specified amount of interest that can be used as savings or can be used as desired.

Difference between Fixed Deposit and Savings Account

To understand the difference between fixed deposit vs Savings account we will have to understand each of their features and their individual components.

Features

Savings Account

Fixed Deposit

Deposit Amount

No Limit

No Limit

Tenure

No fixed tenure

Fixed tenure (ranging from 7 days to 10 years)

Rate of Interest

Variable with market, not fixed

Fixed based on tenure and age of depositor

Withdrawal Limit

Can withdraw any amount while maintaining minimum balance

Withdrawal limit permissible at maturity or prematurely subject to penalty.

Loan Facility

No loan facility available

Fixed deposits can be used as collateral

Tax Benefits

No Tax benefits

Deductions available during lock-in period

Liquidity Options

More freedom to liquidate anytime

Withdrawing before maturity attracts penalties

Senior Citizen Benefits

Priority services with attractive offers available

Higher rates available for senior citizens


Deposit amount limit

Savings account: There is no limit for deposit amount in savings account.

Bank Fixed Deposit: Many of the banks do not have upper limit, it totally depends on the rules of the bank as its deposit amount.

Tenure

Savings account: There is no fixed tenure when it comes to savings account.

Bank Fixed Deposit: It has a fixed tenure ranging from about 7 days and goes up to 10 years as suited according to your plan.

Rate of Interest

Savings account:  It is not fixed, and it varies with the market.

Bank Fixed Deposit: It is fixed, and the rate of interest is based on the tenure for which the money is saved and the age of the depositor. Senior citizens might enjoy a slightly higher rate.

Withdrawal Limit

Savings account -The withdrawal limit is subject to the minimum balance requirement.

Bank Fixed Deposit- Withdrawal limit is permissible at maturity or prematurely withdrawal of money is subject to penalty.

Loan Facility

Savings account – There is no loan facility available in the savings account in most of the cases when it comes to Indian banks, exceptions do exist.

Bank Fixed Deposit- It is available, the bank fixed deposit can be used as collateral.

Tax Benefits

Savings account – There is no tax benefit when it comes to savings account.

Bank Fixed Deposit- There are deductions under Section 80C of the Income Tax Act that is available only for a tax saver FD that will have a 5-year lock-in period.

Liquidity Options

Savings account – It provides more freedom in terms of withdrawing large sums of money from your deposited savings. 

Bank Fixed Deposit- It is possible to withdraw money from Bank fixed deposit, but it might attract penalties.

Senior Citizen Benefits

Savings account- Savings Accounts are a great option for people with fixed incomes but many banks provide senior citizen benefits on savings bank accounts.

Bank Fixed Deposit- Fixed Deposit accounts typically offer higher interest rates for senior citizens, helping them grow their savings substantially.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. 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 Kotak. Kotak, 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.