Comparing savings accounts to other types of accounts and investments

Are you tired of letting your money sit idle in your savings account? Do you wonder if there are better options for your hard-earned money? You’re not alone! With the increasing financial literacy, people are starting to realise that more options are available than just a traditional Savings Account. A recent study in India showed that only 17% of people are satisfied with the returns they get from their savings accounts.

So, what are the other options available to you? In this article, we will compare savings accounts to other types of accounts and investments, so you can make an informed decision about where to put your money.

What is a Savings Account?

A Savings Account is a type of bank account that pays interest on the money you deposit. A saving account is typically offered by banks and credit unions and is insured by Deposit Insurance and Credit Guarantee Corporation (DICGC). DICGC-insured means your money is protected up to Rs 5 lakhs per account. Savings accounts are a great option for people who want to keep their money safe and earn interest without taking too much risk.

Pros of a Savings Account

• Low risk: Safety is one of the primary reasons why people prefer savings accounts. As long as you stay within the DICGC-insured limit, you won’t lose money.
• Liquidity: Savings accounts offer high liquidity, meaning you can withdraw your money anytime without penalty. You can easily transfer your funds to your checking account or withdraw cash from an ATM.
• Easy access: You can easily access your savings account with online banking. You can check your balance, transfer money between accounts, and even set up automatic transfers for savings goals.

Cons of a Savings Account

• Low-interest rates: One of the significant drawbacks of a savings account is the low-interest rates offered. Typically, Savings Account Interest Rates are lower than other investments, such as Mutual Funds (MFs) or stocks.
• Inflation risk: The interest rates on savings accounts may not keep up with inflation, which means your money could lose value over time. If the inflation rate is higher than the interest rate, your purchasing power will decrease.
• Fees: Some savings accounts charge maintenance fees, which could eat into your savings. Additionally, some accounts require a minimum balance to avoid fees, which could be challenging for those with limited savings.

Savings Accounts Vs Other Types of Accounts and Investments

When it comes to choosing where to keep your money, there are several options available. Let’s look at some of the most popular options and compare them to savings accounts.

1. Current Accounts

Current accounts are designed for business or commercial use. They are generally used to make and receive payments and do not typically pay interest. Current accounts are not recommended for personal use, as they often have higher fees and require a higher minimum balance than savings accounts.

2. Fixed Deposits

FDs are a type of investment where you deposit a lump sum of money for a fixed period of time. FDs generally offer higher interest rates than savings accounts, but your money is locked in for a fixed period. You may have to pay a penalty if you need to withdraw your money before the maturity date.

3. Recurring Deposits

Recurring deposits (RDs) are similar to FDs, but instead of depositing a lump sum of money, you deposit a fixed amount of money every month for a fixed period of time. RDs also offer higher interest rates than savings accounts, but like FDs, your money is locked in for a fixed period.

4. Public Provident Fund (PPF) Accounts

PPF accounts are government-backed savings accounts where you can deposit a minimum amount of Rs 500 per year and a maximum of Rs 1.5 lakh per year. The interest rates on PPF accounts are currently 7.1% per annum.

5. Mutual Funds

MFs are a type of investment where your money is pooled with the money of other investors and invested in stocks, bonds, or other assets. MFs offer the potential for higher returns than savings accounts, but they also come with higher risks. The value of your investment can go up or down depending on market conditions.

Comparison Table:

Wrap Up

Savings accounts are a great option for people who want to earn interest on their money while keeping it safe and accessible. While Savings Account Interest Rates may be lower than other investments, they offer low risk and high liquidity. However, it’s important to consider your financial goals and needs when deciding on the best account or investment for you.