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What is better - Guaranteed Savings Plan or Fixed Deposit?

When it comes to choosing between a guaranteed savings plan and a fixed deposit, it depends on individual financial goals and risk appetite. Read ahead to know which one is better for you.

  • 7,349 Views | Updated on: May 24, 2024

Everyone is working hard to get the best lifestyle and manage a luxurious life for their family. It is extremely crucial to have sufficient savings so that one can stay financially secure during uncertain times. However, keeping all the money in a savings account is not a wise financial decision. You can deposit your surplus amount in fixed deposits or any other financial instrument. Read the article to understand the difference between a guaranteed savings plan vs. a fixed deposit.

What is a Guaranteed Savings Plan?

A guaranteed Saving Plan refers to a non-participating plan that offers an endowment assurance at a fixed amount. With this plan, the policyholder will have to pay the premiums for a fixed period. However, once the plan matures, policyholders will receive the benefits of the savings plan.

The policyholder gets an assured sum of all their premiums paid at the end of the plan’s term with other additions. The additions include a fixed interest rate that is added each year. Along with this, the plan offers a maturity bonus as well at the end of the term.

Guaranteed Savings Plan Benefits

A guaranteed savings plan is a type of financial product that provides a guaranteed return on investment over a fixed period of time. These plans are designed to help individuals save money and build wealth over the long term.

Guaranteed Returns

One of the main benefits of a guaranteed savings plan is that it offers a guaranteed rate of return on investment. This means that regardless of market fluctuations or economic conditions, the investor is assured of a fixed return on their investment. This makes it an attractive option for those who are risk-averse and want to be sure of the returns they will receive.

Low Risk

Another benefit of a guaranteed savings plan is that it is a low-risk investment. Unlike other investment products, such as stocks or mutual funds, a guaranteed savings plan does not carry the risk of losing money due to market fluctuations. This makes it a popular choice for those who are looking for a safe and secure investment option.

Flexible Investment Options

Guaranteed savings plans come in a variety of investment options, allowing investors to choose the plan that best suits their needs. Some plans offer a fixed term, while others offer a flexible term. Some plans allow investors to make regular contributions, while others require a lump sum investment.

Tax benefits

Many guaranteed savings plans offer tax benefits, which can help investors save money on taxes. For example, contributions to a registered retirement savings plan (RRSP) are tax-deductible, while contributions to a tax-free savings account (TFSA) are not taxed on withdrawal.

What is a Fixed Deposit?

A Fixed Deposit is a type of deposit account where the investor deposits a certain sum of money for a fixed period of time, typically ranging from a few months to several years. During this period, the investor cannot withdraw the money before the maturity date unless they pay a penalty fee. Once the term is completed, the investor receives the principal amount and the interest earned, which is usually paid out as a lump sum.

Fixed Deposit Benefits

Fixed deposits are a popular investment option among individuals looking to secure their savings and earn higher returns. In simple terms, a fixed deposit is an investment scheme offered by banks and financial institutions where a sum of money is deposited for a fixed period at a fixed rate of interest. These are a few advantages of fixed deposits.

Low-Risk

Fixed deposits are considered to be one of the safest investment options as they come with a low risk of capital loss. The deposit amount is protected, and the interest rate is fixed, which makes it an ideal choice for risk-averse investors. Moreover, fixed deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC), which provides an additional layer of security.

Flexible Tenure

Fixed deposits come with a flexible tenure ranging from a few months to several years. Investors can choose the tenure that suits their financial goals and liquidity needs. The interest rate rises as the tenure lengthens. Moreover, most banks offer the option of premature withdrawal, which enables investors to access their funds in case of an emergency.

Tax Benefits

Section 80C of the Income Tax Act permits tax deductions for fixed deposits. For people under 60, the interest on fixed deposits up to ₹40,000 per year is not subject to income tax. The cap for elderly people is ₹50,000. Moreover, TDS (Tax Deducted at Source) is applicable only if the interest earned on fixed deposits exceeds ₹10,000 per annum.

Easy to Open

Fixed deposits are easy to open, and the process is hassle-free. Investors can open a fixed deposit account by visiting the nearest bank branch or through online banking. Moreover, most banks offer a higher interest rate on fixed deposits opened through online banking.

Guaranteed Savings Plan vs Fixed Deposit

Investing money in a savings plan or a fixed deposit is a common and safe way to save money. It is important to choose the right investment option for your financial goals and risk tolerance. The two most popular options for long-term savings are Guaranteed Savings Plans and Fixed Deposits.

Here is a detailed comparison between a guaranteed savings plan vs. a fixed deposit.

Factors

GSP

FD

Tenure

Ten to thirty years or longer

One to five years

Returns

Monthly, quarterly, or annually

Guaranteed set of pre-determined returns

Payout

Collected funds can be invested in monthly or annual installments, or a lump sum payout of the corpus can opt for

Lump sum payout at the end of tenure

Tax Benefits

Premiums up to ₹1.5 lakhs are exempted under Section 80C of the IT Act

No benefits generally. However, the 5-year tax-saving FD offers benefits under Section 80C of the IT Act

GSP vs FD

Wrapping Up

With the above-mentioned details; you can easily differentiate between FD vs endowment plan and select which one is best for you. Fixed deposits offer a flexible tenure, whereas a savings plan offers various maturity benefits. Therefore, it is advisable to have a mix of investment plans for a good outcome.

Key takeaways

  • A guaranteed Saving Plan refers to a non-participating plan that offers an endowment assurance at a fixed amount.
  • One of the main benefits of a guaranteed savings plan is that it offers a guaranteed rate of return on investment.
  • A Fixed Deposit is a type of deposit account where the investor deposits a certain sum of money for a fixed period of time
  • Fixed deposits are considered to be one of the safest investment options as they come with a low risk of capital loss.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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