Fixed Deposit

Savings habit

India ranks second in terms of gross domestic savings just behind China. Indians have a propensity to save and invest these savings in various bank instruments to earn a decent interest. The three common forms or types of savings account are fixed deposits (FD), savings bank accounts (SB) and recurring deposits (RD). Each of these offers benefits to the investor that is different from one another although savings is the common underlying theme.

Let’s examine the features of savings account and their differences so that you can make a considered opinion to invest appropriately.

Fixed deposits

Fixed deposits are basically term deposits which are held by you in the bank for a fixed term or tenure. You can invest any amount for periods ranging from a few days to 10 years. During this period, you earn a guaranteed interest applicable for the tenure as the rate increases with an increase in tenure.

Savings accounts

A savings account is a passport to undertaking all kinds of banking transactions. You can use the many features of savings account to receive your monthly salary or deposit earnings from your business and you can withdraw funds from this account for your day to day expenses. The amount outstanding in your account earns a specified interest.

Recurring deposits

Recurring deposits are savings instruments that help you to save on a monthly basis. You can save a certain amount every month for a fixed number of months. During the saving period, your deposits will earn interest on the outstanding balance including interest each month. Thus, at the end of the RD tenure, you can receive a tidy sum which includes the deposits made and the interest earned.

Differences

There are differences in the features of savings account on various parameters such as types of savings accounts, interest earned, tenure, tax benefits, usefulness and enhanced benefits.

Types of savings accounts

You can open 8 types of savings accounts from a bank such as IDFC Bank that includes

  • Savings account
  • Corporate salary account
  • Minor’s savings account
  • Senior citizen’s savings account
  • Pratham savings account
  • Shakti savings account
  • Param savings account
  • Vishesh savings account

For instance, among the different types of savings accounts, the Pratham savings account is a zero-balance account with added benefits such as earning 4% interest and use of branch or ATM or Micro ATM to transact. You can use the numerous features of savings account to enjoy many benefits that are available to you as an account holder.

On the other hand, fixed deposits have only two accounts – a standard FD and a tax saving FD.

There is only one type of RD account which allows you to save every month.

Interest earned

FDs earn the highest interest rate. IDFC Bank offers 8.25% interest on FDs kept for a period between 8 and 10 years.
SB accounts earn interest from 4 to 6%.
RDs earn interest from 6.75 to 7.25%.

Tenure

While the SB account is a perpetual account, the FDs and RDs have fixed tenures opted by the depositor going up to a maximum of 10 years or 120 months.

Tax benefits

All three accounts qualify for tax benefits under various sections of the Income-tax Act on the interest earned. All three are also liable to attract TDS subject to exemptions allowed by the Act. While interest earned from all the three qualify for tax deduction up to Rs 10,000 in a year, the tax saving FD gets an additional benefit as the investment up to Rs 1.5 lakh in the tax saving FD qualifies for deduction under Section 80C along with other savings instruments.

Usefulness

You can enjoy the benefits of each savings product that is unique to that product.

For instance

  • If you are in a position to save regularly, then you can opt for the RD account so that you can have a lump sum amount for some future purchase by taking advantage of your propensity to save regularly and also earning a handsome interest
  • If you come into some windfall gains, then you can opt for an FD which will help you to grow your amount handsomely with the highest rate of interest. You can also decide on the tenure based on the exigencies of your circumstances
  • You can use the SB account to continue to enjoy the benefits of banking services including online banking services.

Enhanced benefits

You can use the tax saving FD to grow your capital as well as earn a tax deduction for current income.

You can open up to 8 types of SB account including Pratham savings account and a sweep account which will allow you to get both the benefits of SB account and FD because anything above a threshold limit automatically goes into an FD account earning higher interest rate than it would if lying in just the savings account.

You can take more benefits if you agree to keep a minimum balance in your savings account which could include higher-end debit cards, waiver of certain fees charged, shopping advantages and free access at airport lounges.

As you can see from the foregoing, savings is a good habit and you have ample opportunities to open different types of savings account and make your hard-earned money grow as well as benefit from the many features of savings account at your disposal.