In the last few years, there has been tremendous growth in the deposits of Indian people. There are several investment options in the market, like FD (Fixed Deposit), DD (Demand Deposit), MF (Mutual Fund), SIP (Systematic Investment Plan), PPF (Public Provident Fund) etc. This may seem very wide but there are many investors who have great plans for their future but only few have started their journey of investing with right schemes and right timing.
A fixed deposit, also known as FD, is a deposit you make with a financial institution for a particular period. It typically attracts interest for the first year and then pays the same for years two, three and beyond. A demand deposit account on the other hand offers uninterrupted interest from day one. Needless to say, these accounts are better places to park your money than fixed deposits as their returns will be higher than those offered by a bank or NBFC.
In today’s financial climate, a demand deposit account has become an incredibly important way for customers to save money. DDA accounts are personal savings accounts that offer tax benefits and can be used to withdraw funds on demand. These accounts have many advantages over other savings accounts such as higher interest rates, high liquidity and lower maintenance costs.
Deposit money in your DDA and set the maximum withdrawal limit. This is the amount that you can withdraw each time you make a withdrawal.
Fixed Deposit is one of the safest and most popular investment options in India. These accounts are one of the best methods for accumulating small amounts of money that can be used for emergencies and habitual needs. Also, you can invest on short-term interest rates such as 9 months to 6 years. You will get your maturity amount at the end of tenure with/without compounded interest, depending on your chosen scheme.
Growth of Demand Deposit in India
In December 2021, a significant increase was witnessed in the demand deposits category, which increased by 32% over the same period last year. This rise in demand deposits is mainly attributed to the emergence of COVID-19 as a serious threat to global health. As people seek short-term funds for a variety of purposes (such as educational tuition fees, travel expenses and seasonal shopping), they have moved from fixed deposit accounts to demand deposits.
Growth of Fixed Deposit in India
Deposit rates have risen in the Indian financial system and investors are putting more money in deposits. 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, since banks like SBI (State Bank of India) and NBFCs (Non-Banking Financial Companies) like Shriram have increased the FD rate to 6.30% and 8.40%, numerous depositors have started investing in fixed deposit.
Advantages of Demand Deposit
A demand deposit plays a vital role in helping you with cash flow for personal and business needs:
- 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:
- The interest rate on FD is fixed and does not fluctuate on events of any market.
- You can avail loan against your FD.
It’s Time to Decide Between Demand Deposit and Fixed Deposit
A fixed deposit offers stability and safety. It has lower interest rates but it offers flexibility. There is also the option of making extra profit every year, unlike with a demand deposit which offers no profit on interest earned. However, if you are looking for long-term investments, a fixed deposit is best because it has lower risks compared to short-term ones.