Out of all the financial investment schemes available, a fixed deposit (FD) and an insurance plan are two of the most popular investment 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. You get the option to earn 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:
- Returns are determined at the time of booking for the selected tenure, subject to applicable terms and conditions.
- Premature withdrawal may be permitted depending on the institution’s policies and applicable penalties.
- A fixed deposit can be closed/liquidated if needed in times of emergency. Or you can opt for a loan on FD.
- 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 12 months and a maximum tenure of 60 months.
- You can create more than one fixed deposit according to your financial requirements.
- Some financial institutions may offer special interest rates for senior citizens and women depositors.
Features and Benefits of Life Insurance
A lot of investors consider life insurance as an investment product. It is primarily designed to provide financial protection to beneficiaries in the event of the policyholder’s death. Here are some of the benefits and features 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 policyholder's demise.
- Policies generally have longer tenures compared to many savings products.
- Different types of insurance plans are available, such as term insurance, whole life plans, retirement plans, and other policy structures.
- A life insurance plan can also provide financial security for your beneficiaries in your absence.
Difference Between a Fixed Deposit and Life Insurance
Should you Invest in Fixed Deposit or Life Insurance?
Fixed deposit and life insurance serve different financial purposes. 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.
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 remaining deposit amount.
FAQs
Which is better, life insurance or fixed deposit?
Fixed deposits and life insurance serve different purposes. Fixed deposits are generally used as savings instruments, while life insurance focuses on providing financial protection. The choice depends on individual financial goals and requirements.
Do fixed deposits offer predictable returns?
Fixed deposits offer contractually fixed returns at the booked rate and tenure. The interest is paid as per the predetermined interest rate, unaffected by market volatility.
What is the main difference between a fixed deposit and life insurance?
FDs suit short and long-term goals with reliable returns. Life insurance provides family protection upon your demise. Consider both for balanced planning.