The growth of deposits in India has risen sharply in the last few years. There is always a state of doubt as there are many investment options in the market, like FD (Fixed Deposit), DD (Demand Deposit), MF (Mutual Fund), SIP (Systematic Investment Plan), PPF (Public Provident Fund), etc. Although many people have great plans for their future only a few have started their investment journey. The most common reasons are, lack of clarity on deposit schemes and many are cautions about investing in the wrong schemes that incur losses.
Out of all the deposit schemes available in the investment market, the most popular and safest of all is a fixed deposit. Besides, fixed deposits from reputed NBFCs (Non-Banking Financial Company) like Shriram offer reliable growth and the highest interest rate in the country. So, let us understand the difference between a fixed deposit and a demand deposit to start your investment journey.
Demand Deposit
Fixed Deposit is India’s most popular and safest investment option that offers an attractive interest rate higher than any other savings account. You can deposit money in the bank for a fixed tenure ranging from 7 days to 10 years with an agreed FD interest rate. At the end of the tenure, you will receive your maturity amount with/without compounded interest, depending on your chosen scheme.
Although an FD interest rate varies from bank to NBFC, a fixed deposit is the safest as you receive your principal amount plus the interest at maturity.
Growth of Demand Deposit in India
COVID-19 severely disrupted the world economy. But, December 2021 witnessed a considerable year-on-year increase in demand deposits which increased by 32%. Considering the flexibility offered by demand deposits, people in India have moved from fixed deposits to demand deposits, although they do not provide attractive interest rates.
Growth of Fixed Deposit in India
According to Trading Economics, the value of deposits in India also increased by 9.8% year-on-year in the fortnight ending April 22nd 2022. The growth rate in an FD is inevitable because it is the most trusted and reliable investment in the market. Also, banks like SBI (State Bank of India) and NBFCs (Non-Banking Financial Companies) like Shriram have increased the FD rates by up to 9.40%* p.a., inclusive of the 0.50%* p.a. additional benefits for Senior Citizens and 0.10%* p.a. for Women Depositors, and numerous depositors have started investing in fixed deposits.
Advantages of Demand Deposit
A demand deposit plays a vital role in helping you with swift cash flow for personal and business needs. A few advantages are as follows:
- You can withdraw money without any advance notice and communication.
- Banks do not charge you for any number of withdrawals.
- Demand Deposit allows an electronic transfer.
Advantages of a Fixed Deposit
A fixed deposit has many investment advantages. Below are the essential benefits depositors have to know before starting an investment.
- The interest rate on an FD is fixed and does not fluctuate on events of any market or economic crisis.
- You can avail loan against your FD in times of emergency.
An FD is a low-risk investment with benefits like easy liquidation, tax benefits and insurance.
Types of Demand Deposit
There are three demand deposit accounts through which you can deposit or withdraw your money. But a few different policies differentiate the accounts from each other.
Checking Account
A checking account is the most widely used demand deposit account that offers excellent liquidity to depositors with the help of a debit card and chequebook. This account helps you to withdraw cash and pay bills at your most convenient place and time.
Interest earned in a checking account is minimal as it involves significantly less risk. A few types of checking accounts are:
- Traditional Checking Account
- Premium Checking Account
- Interest-Bearing Checking Account
- Rewards Checking Account
- Student Checking Account
- Second Chance Checking Account
Savings Account
A savings account is the most popular type of demand deposit account. It offers a slightly higher interest rate than a checking account but gives all the privileges of a checking account with a few restrictions like; limiting the number of transfers or withdrawals a month. However, if you do not abide by these rules, you would attract charges from the respective banks.
Also, most banks offering saving accounts for a demand deposit do not provide ATM cards. Therefore, you must transfer funds to another account to withdraw cash.
Market Money Account
A market money account is a hybrid account of savings and checking accounts. It applies the market interest rate to calculate the demand deposit maturity amount. Besides, the interest rate is competitive with a savings account and much higher than a checking account. And the economic and market fluctuations adversely affect the interest rate.
Types of Fixed Deposit
Banks and NBFCs allow you to open fixed deposit accounts according to your personal and financial needs. Here are a few different FDs available in the market and are different based on features, limitations, and advantages. We’ve put together a list of fixed deposit types to help you decide on the perfect investment.
- Cumulative FD - Cumulative Fixed Deposit offers the highest FD interest rate available only at maturity.
- Non-Cumulative FD - Non-cumulative FD offers interest payout at a regular interval, and you are entitled to a lesser amount at maturity.
- Bank Deposit - This deposit is the safest investment option because you can use your savings account from the bank to deposit your money. Nevertheless, the interest rate is low compared to NBFCs.
- Company Deposit - This type of deposit offers the highest interest rate on an FD, which is availed to companies with an excellent credit rating.
- Senior Citizen FD - Senior citizens (above 60 years) can leverage this type of deposit to invest their retirement benefits and earn an exclusive interest rate. Shriram, a popular NBFC in India, offers an 9.40%* p.a. interest rate (inclusive of the 0.50%* p.a. Senior Citizen benefit and the 0.10%* p.a. Women Depositor benefit) on a fixed deposit for senior citizens.
- NRIs FD - This type of FD is offered only to NRIs (Non-Resident Indians), OCIs (Overseas Citizens of India), and PIOs (Persons of Indian Origin) with NRO (Non-Resident Ordinary) accounts to promote investment domestically. Banks pay a higher interest rate to attract depositors from overseas, and the maturity payment gets credited to the bank account through NEFT/RTGS.
- Regular FD - This is the most common type of deposit in which you can choose the tenure of your deposit, and banks will offer a fixed interest rate.
- Tax Saving FD - Tax savers leverage this fixed deposit to avail of an annual tax exemption of up to 1.5 lakhs. To be eligible for tax-saving FD, one must deposit a considerable amount to start the investment.
- Flexi Fixed Deposit - This FD is linked to a savings account where you have the privilege to save a limited amount of money in the savings account and transfer the excess to an FD.
- Standard FD - This is the banking industry’s most popular type of FD. The tenure is fixed between 7 days to 10 years, and the interest rate is higher than most savings accounts.
Understanding the advantages and types of fixed a deposit and demand deposit would have given you a new perspective on an FD and DD. But, you have to consider your personal, financial, and business needs before finalising your investment option.
It’s Time to Decide Between Demand Deposit and Fixed Deposit
A fixed deposit and demand deposit has their own strengths and weaknesses. However, if you are looking for a long-term investment, make a wise choice today and book a fixed deposit with Shriram because it will help you generate more profitability and offers flexibility in your investment. And, if you are considering a short-term investment, a demand deposit is the best choice because it will help you with easy cash withdrawal according to your business or financial needs.
