Why Choose a Fixed Deposit over Savings Account? Savings account is a great way to manage our day to day liquidity but for long term planning and saving, the interest on fixed deposits is preferable.
- Govem the guaranteed returns and higher interest rates, when compared to savings accounts, an FD is considered to be a good investment and saving tool in the long-run.
- FDs have fixed terms or ;ock-in periods, which prevent you from spending the money in haste.
- You can opt to receive your interest at regular intervals or reinvest them in the FD.
- You can choose the term for the FD according to your liquidity needs. For instance, if you have10,000 AED lying idle in your savings account and you are likely to need the money only after a year or so, then fixing the amount in an FD for one year could be the ideal choice. In fact, you can choose a term as low as 30 days and as long as ten years.
- Banks generally do not offer loans to savings account holders but fixed deposit holders can easily get a, loan keeping their FD as collateral.
- Do not open an FD considering the higher interest on fixed deposits as the only criteria. Open an FD when you have a substantial amount of cash lying idle in your savings account and you are completely sure that you wouldn't need it during the term of the FD.
- We cannot predict future financial needs. Therefore, it is advisable not to put all your money in an FD despite being sure of its non-utility in the coming months/years. Split large amounts into different fixed deposits of differing tenures. Make sure you have enough no-penalty, easy to withdraw, accounts as well to cover emergency needs.