When it comes to growing your savings in India, two popular options are Fixed Deposits (FDs) and High-Yield Savings Accounts (HYSA). Each has its own advantages and is suited for different financial goals.

In this article, we’ll explore the key differences between FDs and HYSAs, helping you decide which is the better option for your needs.

What is a Fixed Deposit (FD)?

A Fixed Deposit (FD) is a financial instrument offered by banks and non-banking financial companies (NBFCs) in India that provides investors with a higher interest rate than a regular savings account until the given maturity date. It’s a popular savings option for conservative investors who prefer safety and steady returns.

Also Read: Best Tax Saving Investments for Senior Citizens in 2024

Types of Fixed Deposits

  1. Standard Fixed Deposit: A regular FD where a lump sum amount is deposited for a fixed tenure, earning a predetermined interest rate.
  2. Tax-Saving Fixed Deposit: This type of FD offers tax benefits under Section 80C of the Income Tax Act, with a lock-in period of 5 years.
  3. Senior Citizen Fixed Deposit: Designed specifically for senior citizens, this FD offers a higher interest rate than standard FDs.
  4. Recurring Deposit (RD): Allows investors to deposit a fixed amount every month instead of a lump sum, earning interest similar to an FD.
  5. Flexi Fixed Deposit: Linked to a savings account, it offers flexibility to withdraw a portion of the deposit without affecting the interest on the remaining amount.

Tenure

  • Fixed Deposits in India typically have tenures ranging from 7 days to 10 years. The interest rate varies depending on the tenure, with longer tenures usually offering higher rates.

Interest Rate

  • The interest rate on FDs varies across banks and financial institutions, generally ranging from ~4% to ~9% per annum, depending on the tenure and type of FD. Senior citizens often receive an additional interest rate of 0.25% to 0.50% above the standard rate.

Who Should Opt for a Fixed Deposit?

  • Risk-Averse Investors: Those who prefer safety and guaranteed returns.
  • Long-Term Savers: Individuals who can lock in their money for a longer duration without needing immediate liquidity.
  • Senior Citizens: Those looking for a higher interest rate with minimal risk.
  • Taxpayers: Individuals who want to reduce their taxable income through tax-saving FDs.
  • Interest Lock in – Individuals who want stable & locked interest rate and want to avoid change in the interest rate for their investments.

High-Yield Savings Account (HYSA) in India

A High-Yield Savings Account (HYSA) is a savings account that offers a higher interest rate compared to regular savings accounts based on account balances. These accounts are becoming increasingly popular in India as they provide a good balance between liquidity and returns. Some of the typical brackets and interest rates for the high yield saving account includes as follows:

* Balance upto Rs 1 lakh- Interest rates are upto 4%

* Balance between Rs 1 lakh and Rs 10 lakh- Interest rates are upto 6%

* Balance above Rs 10 lakh- Interest rates are upto 7.5%

In addition there are categories for very high amounts of deposits offering special rates.

Who Should Opt for a High-Yield Savings Account?

  • Short-Term Savers: Those looking for a safe place to park their money with the flexibility of easy access.
  • Emergency Fund Builders: Individuals who want to maintain a liquid emergency fund while earning better interest than a standard savings account.
  • Tech-Savvy Customers: Those who prefer managing their finances online and appreciate the convenience of digital banking.
  • Individuals Seeking Liquidity: Those who may need to access their funds frequently

Conclusion: Which One Should You Choose?

  • Choose a Fixed Deposit if you have a lump sum to invest for a fixed period and prioritize guaranteed returns over liquidity. It’s ideal for medium term and long-term financial goals, such as retirement planning or saving for a child’s education.
  • Choose a High-Yield Savings Account if you prefer flexibility and liquidity. It’s perfect for short-term savings, emergency funds, or if you want to earn higher interest without locking in your funds.

Both FDs and HYSAs serve different financial purposes, so the choice depends on your specific needs, financial goals, and risk tolerance.

(By Ravi Jain, Co-Founder & MD, Blostem)

Disclaimer: Views expressed are personal and do not reflect the official position or policy of FinancialExpress.com. Reproducing this content without permission is prohibited.