Where to Park Spare Funds- Comparing Savings Account, Fixed Deposits and Mutual Funds

The moment an individual starts earning, he/she begins thinking of ways to increase the income and save for the future. A significant part of future financial planning is investing spare money to earn interest or returns from it. Savings accounts, fixed deposits and mutual funds are the most popular options for investors who wish to save or invest their money and earn interest on it.

Savings Accounts are ideal for short-term goals like buying a gadget or an asset, but when it comes to long-term financial planning, they are not the best option. Fixed deposits and mutual funds are more beneficial when you are planning for a financially secure future.

Fixed Deposits are similar to savings accounts in their functionality of acting as a cash depository but they don’t allow frequent withdrawals like in case of savings accounts. They do allow overdraft or loans against the deposited amount. Moreover, they offer much higher interest rates on FD (around 7-8%) as compared to savings accounts (3%).

Mutual Funds are pooled funds that are managed by professionals and invested in market instruments like stocks and bonds. It is thus quite clear that earnings from mutual funds will depend on the performance of market instruments.

This brings us to the key difference between mutual funds and fixed deposits- the former are subject to the market conditions whereas the latter is not.

Thus a fixed deposit will give you steady but assured returns at the decided rate of interest for a particular tenure.

Read About: USEFULNESS OF FIXED DEPOSITS AND OTHER ALTERNATIVES FOR RETIRED INDIVIDUALS