Difference between Savings Account and Fixed Deposit Account

5 mins read
by Angel One
FD and Savings accounts are the two most common savings plans. Explore the differences between savings and FD accounts to guide your investment choices. Read on to know which is better for you!

In the quest for financial stability and growth, individuals often find themselves at a crossroads when choosing between a savings account and a fixed deposit account. Both financial instruments are pivotal in a well-rounded financial strategy, offering unique benefits tailored to diverse financial goals and liquidity needs. 

In this article, we will delve into the difference between a savings account and a fixed deposit account, providing insights to help you decide where to park your funds for optimal returns.

Understanding Savings Account

A savings account is a fundamental financial tool designed to offer a secure haven for your funds while earning a moderate interest rate. It’s the quintessential choice for individuals aiming to segregate their daily expenditures from their savings, ensuring easy access to an emergency fund or savings for short-term objectives. 

The difference between savings accounts and fixed deposit accounts primarily lies in their flexibility and interest rates. Savings accounts are known for their high liquidity, allowing account holders to withdraw funds without constraints, making them an ideal repository for emergency funds or short-term savings.

Pros and Cons of Savings Accounts


  • Easy Fund Access: The liquidity of savings accounts is unmatched, providing immediate access to funds for emergency needs or daily transactions.
  • Widespread Availability: Savings accounts are the most basic financial product banks offer, making them easily accessible nationwide.
  • Low Initial Deposit: Many banks allow the opening of savings accounts with a minimal initial deposit, catering to those with limited funds.


  • Lower Interest Rates: The interest rates on savings accounts are relatively low, often resulting in the erosion of value due to inflation.
  • Minimum Balance Requirements: Some accounts mandate maintaining a minimum balance, failing which penalties might negate the interest earned.

Understanding Fixed Deposit Account

A fixed deposit (FD), on the other hand, is an investment avenue offering higher interest rates over a predetermined period. This term can range from a few days to a decade, with the interest rate often exceeding that of savings accounts. The allure of FDs lies in their ability to offer guaranteed returns, making them a preferred choice for long-term savings goals, such as retirement planning. 

The fixed deposit vs savings account debate often tilts in favour of FDs for individuals seeking higher returns on their investments without the need for immediate fund access.

Pros and Cons of Fixed Deposit


  • Flexible Tenure: FDs offer a range of investment tenures, from short-term to up to 10 years, often with higher interest rates for longer durations.
  • Guaranteed Returns: FDs provide a sense of security with guaranteed returns upon maturity, making them a safer investment than market-linked instruments.
  • Tax Advantages: Certain FDs offer tax benefits under specific sections of the Income Tax Act, enhancing their appeal as an investment option.


  • Limited Liquidity: Access to funds in FDs is restricted until the end of the tenure, with penalties for early withdrawal affecting the final amount receivable.

Explore the Fixed Deposit Calculator

Key Differences Between Savings and Fixed Deposit Accounts

Particulars Fixed Deposit Savings Account
Objective To earn higher interest over long tenures To keep funds safe and readily available
Tenure Fixed, ranging from days to 10 years No fixed tenure
Interest Rate Generally higher Lower in comparison
Withdrawal Limits Upon tenure completion Anytime, subject to minimum balance
Collateral for Loans Yes Generally, no
Tax Benefits Available for certain tenures None
Liquidity Limited High

Why Choose Fixed Deposit Over Savings Account?

  • Higher Interest Rates: The most compelling reason for choosing FDs over savings accounts is the significantly higher interest rates, enabling your savings to outpace inflation.
  • Tax Benefits: FDs, especially those with a tenure of 5 years and above, offer tax advantages, making them an attractive option for tax-saving purposes.
  • Disciplined Investment: The fixed tenure of FDs fosters a disciplined approach to saving, as funds are locked in until maturity.
  • Loan Collateral: FDs can serve as collateral for loans, providing a safety net in financial emergencies.
  • Tenure Flexibility: FDs’ wide range of tenure options allows investors to plan for both short-term and long-term financial goals.

The Bottom Line

The difference between a savings account and a fixed deposit account underscores the importance of aligning your choice with your financial objectives, liquidity requirements, and investment horizon. 

Incorporating tools like the fd vs sip calculator can further aid in comparing the potential returns from fixed deposits against systematic investment plans, offering a broader perspective on your investment options. Ultimately, whether you lean towards the security and liquidity of a savings account or the higher yields and structure of a fixed deposit, the key is to choose an instrument that aligns with your financial goals, ensuring a stable and prosperous financial future.

To truly capitalise on the opportunities available in the investment landscape, opening a demat account becomes essential. Angel One offers a seamless and user-friendly platform to embark on your investment journey. Open your account today!


Is a savings account required for FD?

In India, most banks do not require you to have a savings account before you can open a fixed deposit (FD). However, opening a savings account simplifies transferring funds and managing interest payments.

What is the difference between a savings account and a term deposit account?

A savings account offers liquidity and easy access to funds with a lower interest rate. A term deposit account, or FD, locks funds for a specific period, offering higher interest rates but limited access.

Is FD 100% safe?

FDs in India are considered very safe, especially with banks insured under the Deposit Insurance and Credit Guarantee Corporation (DICGC), covering up to ₹5 lakh per depositor per bank.

Can a savings account be converted to a fixed deposit?

Yes, funds from a savings account can be moved to a fixed deposit within the same bank to earn higher interest. This does not convert the account but transfers funds between accounts.

Is a fixed deposit better than a savings account?

FDs are better for earning higher interest rates and saving for long-term goals. Savings accounts are ideal for daily transactions and immediate fund access. The choice depends on your financial needs and goals.