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Fixed Deposit vs Life Insurance: Which is the Better Investment? 

Posted: 29th December, 2022

Updated: 2nd February, 2023

Written by -

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Out of all the financial investment schemes available, a fixed deposit (FD) and an insurance plan are the most popular products. A fixed deposit is available at banks, Non-Banking Financial Companies (NBFCs) and other financial institutions. Only registered insurance corporations provide life insurance. The difference between a fixed deposit and a life insurance scheme is that one is an investment while the other is a risk cover.

A fixed deposit is a great investment option to help you develop a healthy savings habit. With a Shriram Fixed Deposit, you get the option to earn more interest through a cumulative deposit or could get a regular interest payout with a non-cumulative deposit. Use Shriram FD calculator to check the interest rates you may get for the tenure of your choice.

A fixed deposit and life insurance are both investment options that the residents of India mostly choose. So then, which scheme should you invest in? Let's explore the differences between a fixed deposit and life insurance to understand the benefits and features.


Features and Benefits of a Fixed Deposit

A fixed deposit is an investment scheme which requires you to invest a lump sum of money for a predetermined tenure. The interest rate on this deposit will be decided before the account creation and will not change until maturity. Here are some of the benefits and features you should know about:

  • You can get a higher rate of interest than a regular savings account.
  • The returns on your fixed deposit are assured if you do not prematurely withdraw it.
  • A fixed deposit can easily be closed/liquidated if needed in times of emergency.
  • With a non-cumulative deposit, you can get a regular interest payout to handle more minor expenses.
  • The flexible tenure feature can help you plan your financial goals efficiently. Most banks and NBFCs offer a minimum of 7 days and a maximum tenure of 10 years.
  • You can create more than one fixed deposit according to your financial requirements.
  • Some financial institutes offer special interest rates for senior citizens.

Features and Benefits of Life Insurance

A lot of investors consider life insurance as an investment product. It is the type of insurance that offers financial stability to the assured person's family. It can also be used to achieve certain financial goals. Here are some of the benefits features and benefits you should keep in mind:

  • A life insurance plan comes with risk coverage that will also cover the rest of the family in the case of the policy holder's death.
  • A life insurance plan's period is long-term and unsuitable for short-term requirements.
  • According to Section 80C and 80D of the Income Tax Act, you can get tax benefits on your life insurance.
  • Term insurance plans, whole life plans, retirement plans, senior citizen plans and more are different types of insurance plans available.
  • A life insurance plan can also provide financial security for your beneficiaries in your absence.

Difference Between a Fixed Deposit and Life Insurance

Feature Fixed Deposit Life insurance
Tenure 7 days to 10 years Minimum of 10 years
Returns May/May not be available Tax benefits are available
Withdrawal Premature withdrawal is possible It depends on the type of insurance you need
Investment The minimum amount to start investing in a fixed deposit is Rs. 1000 and there is no limit on the maximum limit The premium on a life insurance plan depends on your choice of policy

Should you Invest in Fixed Deposits or Life Insurance?

A fixed deposit and a life insurance plan are useful and offer investments. While an FD helps you develop a healthy savings habit, an insurance plan enables you to provide financial security to deal with any emergency that can impact your life. When it comes to the ability to customise an investment, FD offers better benefits

You can use the flexible tenure feature to plan your investments more efficiently. An FD can also be used for both long and short-term investments. Apart from these features, you can also use an FD to take a loan and continue to earn interest on the deposit.

Invest in a Shriram Fixed deposit to get high-interest rates of up to 9.05%* p.a., including 0.50%* p.a. extra interest for senior citizens.


FAQs

  1. 1. Which is better, life insurance or fixed deposit?

A fixed deposit is better than a life insurance plan for an investment scheme. A fixed deposit has more flexibility in terms of tenure, amount, and type of deposit to suit your requirement.

  1. 2. Does a fixed deposit offer guaranteed returns?

Yes, a Shriram Fixed Deposit offers assured returns, and the interest rate is not affected by market fluctuations.

  1. 3. What is the main difference between a fixed deposit and life insurance?

The main difference between a fixed deposit and life insurance is that one is a savings scheme, and the other offers a risk cover.


Key Highlights:

  • A fixed deposit and an insurance plan are the favourites among investment schemes in India.
  • An FD is available at banks, NBFCs, and other financial institutions, while the registered insurance company can only offer an insurance plan.
  • The returns on a fixed deposit are assured and are not impacted by market fluctuations.
  • An insurance plan can act as financial security for your family.
6 Things to know before investing in an FD instead of RD!
6 Things to know before investing in an FD instead of RD!
Earn Up to 10.91%*p.a. Effective Yield with Shriram Cumulative FD Now
Earn Up to 10.91%*p.a. Effective Yield with Shriram Cumulative FD Now