It is very important to save money. But money never grows just by saving. Money grows only when invested. Hence, it is very important to know where to put your money, so that you could get more interest from the money you have. In India, the top 3 options are a fixed deposit, a recurring deposit and a savings account and these confuse most of the people. Most of the people are generally confused about Fixed Deposits, Saving accounts and RD account. Let us have a look at different aspects of these and have a better understanding.

Post Office Savings Account

  • A Post office Savings Account can be opened only by cash.
  • Minimum balance required to be maintained in a non-Cheque facility account is ₹ 50.
  • ATM facility is available for the account holders.
  • Interest earned is totally Tax-Free up to ₹ 10,000 per annum
  • Nomination facility is available.
  • Transferred of the account is available from one post office to another.
  • Only One account can be opened in one post office.
  • The account can be opened in the name of minors also.
  • Joint account can also be opened for two or three adults.
  • A single account can be converted into Joint and conversion of a joint account to single is also possible.
  • Deposits and withdrawals can be done through any mode including an electronic one.
  • The accounts on the name of a minor can be converted on their name when they become adult.

A Savings Account is the basic account which is provided by all the banks in India. A savings account provides you the facility to deposit and withdraw the money as per your wish. Savings accounts offer interest on the deposit, and are the safest way to grow money along with the ease of withdrawal. There are no fixed rules about the time period for which money should be maintained in the account. The account holder can deposit and withdraw as per their need and convenience. Savings account can be thought of as your wallet, but with the bank, where you can store as much and withdraw as much as you want, while earning interest on the deposited amount.

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Post Office Fixed Deposits

  • Post office FD can be opened by cash, Cheque both.
    Nomination facility is available.
  • A post office FD Account can be transferred from one post office to another without any hassle.
  • More than one FD accounts can be opened in any post office
  • The post office also provides the facility to open Joint account by two individuals.
  • A post office single account can be converted into Joint and a joint account can be converted to a single one.
  • The accounts on the name of a minor can be converted on their name when they become adult.
  • FD Accounts can be opened for minors as well.

Fixed Deposit Account is a kind of investment, where the money is deposited for a particular period of time (tenor) and the bank/financial institution pays interest on the money deposited. But unlike a savings account, the money cannot be withdrawn before the fixed tenure, or rather it should not. Withdrawing/breaking a fixed deposit before the fixed tenure costs a penalty which needs to be bore by the account holder. It is often said that FD is the best way to grow money as the interest rate on FDs are generally higher as compared to other accounts and reason behind this is the interest on FDs are independent of the market fluctuations and other risks.

Post Office Recurring Deposit Account

  • A post office recurring deposit account can be opened by cash, Cheque both.
  • Nomination facility is available.
  • RD can be transferred from one post office to another.
  • Even one can open more than one accounts in any post office.
  • The account can be opened in the name of minor also
  • Joint account can also be opened by two people.
  • A rebate is offered on the advance deposit of at least 6 installments
  • A Single RD account can be converted into Joint and a joint account can also be converted to a single one.
  • Withdrawal is allowed but only up to 50% that too after one year.
  • The accounts on the name of a minor can be converted on their name when they become adult.
  • Deposits can be made up to the 15th day of next month if an account is opened up to 15th of a calendar month.

Recurring Deposit Accounts or RDs are offered by banks where a fixed particular amount is deposited on monthly basis and he bank/financial institution pays interest on the money deposited. It is similar to FD except that in RD the money is deposited on a monthly basis and in FD the deposit is made at the time of account opening. The interest earned on the recurring deposits are taxable.

Quick Comparison between Savings Account, Fixed Deposit and Recurring Deposit Account

Features Savings Account Fixed Deposits Recurring Deposit
Rate of Interest The rate of interest is not fixed. It varies with the market.= Rate of interest is fixed. Generally it is rate varies from 6.96% to 8% Rate is fixed. It varies from 5.25% to 7.90% per year
Deposit Amount No limit on the deposit amount The money you deposit is fixed and you get interest on that particular amount A particular amount is deposited monthly for a particular period of time
Tenure No tenure. The tenor period is always fixed The tenor period is fixed
Withdrawal No withdrawal limit. Withdrawal on maturity Withdrawal on maturity
Tax Benefit You can not avail any tax benefit for savings account. Tax exemption is available for FDs under the section 80 of income tax Income tax will not be deducted for interest earned up to INR 10,000
Loan against the Account Not available Available Not available

Now let us have a look at the different aspects of these accounts which differentiates them from each other.

Balance Limit

In savings account there are no limits on the amount of money which can be deposited and the amount which can be maintained in the account. Which means the account holder can deposit as much as they want. There is no restriction on it. Whereas in FD the money deposited will be under the terms and condition of the Bank. But when it comes to RD it is different from both savings accounts and FDs, there a particular amount needs to be deposited monthly, and this amount is decided while opening the account.

Tenure

Savings account have no relation with the tenor period while for the FDs there is a fixed tenor period depending on the bank with which the FD account exists. In general the tenor for FD varies from 7 days to 10 years and when it comes to RDs, there is also fixed tenor period for them but it’s duration is less than the FDs. Which is a max of 7 years.

Interest Rates

The interest rate on the savings accounts are not fixed and it varies according to the market fluctuations and with the risk factors whereas both Fixed Deposits and RDs have fixed interest rate which depends on the amount, tenor period. These two are completely independent of the market fluctuations. For FDs the interest rate varies from 6.96% to 8% while in RD the interest rate varies from 5.25% to 7.90% for a tenor of 1 year.

In savings account the interest is calculated on daily basis whereas in FD and RD interest is calculated on the quarterly or yearly basis. Some banks offers the interest amount monthly which will get credited to a specific account but in this case the interest will be comparatively low.

Tax Benefit

The savings account do not offer any tax benefit whereas FDs and RDs do. With a RD you get a tax benefit if your interest earned is up to 10,000. 

Interest earned on your savings account are completely taxable whereas interest earned on FD is mostly taxable and it is included under TDS by most of the banks. In RDs the interest is also taxable but it is not included under TDS by most of the banks.

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Withdrawal

Withdrawal is allowed from a savings account and there is no limit of withdrawing. The account holder can withdraw  as much as they want but in FDs and RDs they can’t do so, and the money can be withdrawn only when the tenor ends. There are penalty on premature withdrawal, which the account holder would need to pay.

Loan against the Account

No loan can be availed against the savings account and RD account but secure loan can be availed against a Fixed Deposit.  Loans are offered by banks on fixed deposits amounts of its customers. Banks will make use of the fixed deposit as the collateral for sanctioning the loan amount and in case if the borrower defaults, bank have all the right to take the loan breaking the term, time or fixed deposits. On domestic fixed deposits banks will offer loan upto 90% of the fixed deposit value. Some of the top banks to offer loan against fixed deposit and time deposit for domestic fixed deposits are SBI, ICICI Bank, Axis Bank and HDFC Bank.

The choice of any of these account depends on the needs of the account holder and the decision to go with any of these should be taken only after understanding each and every aspect of each account. What works best for one person might not be a good option for someone else. An informed decision will help reach the desired goal along with the peace of mind.

(Updated 12-06-2019)