Saving money is really important for your future and retirement. When it comes to savings, fixed deposits and savings accounts are two of the most popular and safest options that come to mind. But, how do you know which one is better for you? Read on to understand everything you need to know about these two accounts to make the right decision.
The money in your savings account may not help you earn huge interest, but it will give you quick access to funds without much hindrance. Similarly, there are benefits and drawbacks of fixed deposits as well. Here, we will discuss the pros and cons of these accounts.
Why a Fixed Deposit Account Is Better Than a Savings Account
- If you as a depositor intend to get tax benefits out of your deposits, then putting your money in a fixed deposit will be a much better option as they are often linked to various tax-saving schemes.
- Fixed deposits offer guaranteed returns. This is a key benefit of investing in a fixed deposit as you will not have to worry about the well-being of your investment and how much money you will get as returns. The bank will quote an interest rate that will give you a precise figure.
- In case you are looking to apply for a loan, but you do not have a relevant credit history, then you can use the money in your fixed deposit as collateral to get the loan.
- With a fixed deposit, you will get a higher rate of interest in comparison to a savings account and the effort that you will have to put is negligible. The longer your tenure, the better your returns.
- You can even obtain a credit card using the fixed deposit as collateral. There are banks in Singapore that will charge lower interest rates for credit cards secured by fixed deposits.
- The money in your fixed deposit can be used as a last resort in case you are faced with a crisis. You can fall back on the money in your fixed deposit at any time. Although you may lose the interest earned on the deposits if you withdraw the money prematurely, you have the authority to take out the money for varied reasons such as marriage, business expansion and sickness.
- If you are over 60 years old, there are some banks that offer a higher rate of interest above the prescribed rates on your fixed deposit. This is known as the senior-citizen interest rate.
- You have the option of choosing the tenure as well as the amount you want to invest in fixed deposits. Fixed deposits offer flexible tenures. It can last for a month or 120 months and even more depending on the bank or financial institution.
- Depending on your financial goals, you can split the money in your fixed deposit and choose to have more than one fixed deposit account with diverse tenures and earn separate interest on each.
- With a fixed deposit, you will also build a habit of saving as the money you put in a fixed deposit account will stay there for a substantial period.
Key Differences Between Savings Account and Fixed Deposit Account
|Factor||Savings Account||Fixed Deposit Account|
|Collateral||You cannot use savings bank account to secure loans.||Some banks in Singapore accept the money in your fixed deposit as collateral when you apply for a loan.|
|Deposit limit||There is no limit to the amount of money you can put in a savings account.||The amount of money that you put in a fixed deposit depends on the rules of the specific bank.|
|Lock-in period||With savings accounts, there are no lock-in periods.||A lock-in period will be associated with each fixed deposit account.|
|Tenure||You will not find a fixed tenure with savings account.||There are fixed tenure associated with all fixed deposit account|
|Tax benefits||There are no tax-saving benefits associated with a savings bank account.||There are banks that offer tax-saving benefits with a fixed deposit account.|
|Interest rates||The interest rates associated with a savings account often fluctuate.||Fixed deposits offer a guaranteed rate of interest.|
|Account types||There are limited variations associated with a savings bank account.||Banks in Singapore offer multiple fixed deposit schemes, each of which has its own features.|
|Interest rate calculation||The interest rates offered are not dependent on the amount deposited, the tenure or the age of the account holder. Interest rates are calculated on a daily basis||In contrast, fixed deposit interest rates are based on the tenure selected, the sum deposited and the account holder’s age. Interest rates are calculated either on a monthly or quarterly basis|
There are unique aspects associated with both types of accounts and the information mentioned above will help you in choosing between a savings account and a fixed deposit account.