These days some banks are offering an interest rate of around 6-7 per cent on savings bank account.
Difference between high interest savings account vs bank Fds
To begin with let us understand the difference in tax. Interest rate on bank Fds is fully taxable. So, the interest income is added to the total income for the purposes of filing tax returns.
Interest on savings bank account is exempt up to Rs 10,000 per financial year. So, if you have interest below Rs 10,000 from savings account it is fully exempt from tax.
Should you invest in high interest savings account or bank Fds?
We believe that some banks like RBL Bank offer an excellent interest rate of above 7 per cent on savings account. You can place in these accounts, when you are not certain, about your liquidity conditions.
Let us give an example. Let us say that you have sold some property and need to buy one sometime in the future. Now, you are not sure when you will buy a property. Let us assume that you placed the amount received in an Fd for 7 per cent for 1 year. If you need the money after 6 months, you will get the contracted rate of say 6 per cent, less 1 per cent for breaking the fixed deposit early.
In this case it would have been better to invest in high interest savings account rather than a fixed deposit. On the other hand you can invest in Fds, if you are looking at long term and you are not worried of liquidity.
For example if you are sure that you are not going to breat the FD, then over a slightly longer term you can get an interest rate of up to 7.5 per cent.
In the sense it would be advisable, to go for a fixed deposit, if you are looking for a long term tenure.