Flexi Deposit vs. Regular Fixed Deposit: Which is Right for You?

When it comes to choosing a savings tool, Fixed Deposits (FDs) are often a preferred option for many investors. The introduction of the flexi fixed deposit scheme has added another dimension to the traditional FD, offering more flexibility and convenience. Here’s a look at the differences between flexi deposits and regular fixed deposits, and more.

Regular Fixed Deposits

A regular fixed deposit is a financial product where you deposit a fixed amount of money with a bank or NBFC for a specified period, known as the tenor. The key characteristics of a Regular FD include:

• Fixed Tenor: The duration can range from a few days to several years, depending on your financial goals
• Stable Interest Rates: Interest rates are locked in at the time of deposit, ensuring guaranteed returns
• Low Risk: Regular FDs are considered low-risk investments, ideal for conservative investors
• Premature Withdrawal: While you can withdraw your funds before the maturity date, it usually incurs a penalty

Flexi Fixed Deposit

A flexi fixed deposit, also known as a flexi deposit, combines the features of a savings account and a regular FD. It offers the flexibility of withdrawing funds as needed while still earning higher interest rates typically associated with fixed deposits. Its key features include:

• Linked Accounts: A Flexi Deposit is linked to your savings or current account, allowing seamless transfers between the accounts
• Automatic Sweep-in/Out Facility: Excess funds in your savings account are automatically transferred to the flexi deposit, and funds are transferred back to your savings account when needed
• Liquidity: Flexi Deposits provide better liquidity compared to regular FDs, making it easier to access your money without facing significant penalties
• Partial Withdrawals: You can make partial withdrawals without breaking the entire deposit, ensuring that the remaining amount continues to earn interest

Comparing Flexi Deposit and Regular Fixed Deposit

Liquidity and Flexibility

Flexi Deposit:

• Offers high liquidity with the ability to withdraw funds as needed
• The automatic sweep-in/out facility ensures that your funds are optimally utilised
• Partial withdrawals are possible without significant penalties

Regular Fixed Deposit:

• Lower liquidity as funds are locked in for the tenor
• Premature or partial withdrawals often incur penalties

Interest Rates

While both flexi deposits and regular FDs offer attractive interest rates compared to savings accounts, regular FDs typically provide slightly higher rates due to the fixed nature of the deposit. Flexi deposits offer competitive rates but may vary based on the balance maintained and the frequency of withdrawals.

Investment Tenor

Flexi Deposit:

• No fixed tenor, as the flexibility allows for deposits and withdrawals as per your convenience
• Ideal for those who may need to access their funds frequently or unpredictably

Regular Fixed Deposit:

• Fixed tenor ranging from a few days to several years
• Ideal for investors with a clear time horizon and no immediate need for liquidity

Suitability

Flexi Deposit:

• Individuals who require frequent access to their funds
• Those looking for a combination of liquidity and higher returns than a savings account
• Suitable for managing short-term surplus funds

Regular Fixed Deposit:

• Investors looking for a stable, low-risk investment with guaranteed returns
• Ideal for long-term financial goals where funds can be locked in for a specific period
• Those who do not require immediate access to their funds

Tax Implications

Both flexi deposits and regular FDs are subject to tax under the Income Tax Act, 1961. The interest earned is added to your income and taxed as per your income tax slab. Banks and NBFCs also deduct Tax Deducted at Source (TDS) on interest income if it exceeds a certain threshold in a financial year.

Choosing Between Regular and Flexi FDs

Choosing between a Flexi Deposit and a Regular Fixed Deposit depends on your financial needs and goals. Here are a few considerations to help you decide:

• Need for Liquidity: If you anticipate needing access to your funds frequently, a Flexi Deposit may be the better choice. It offers liquidity without significant penalties.
• Investment Horizon: For long-term goals where you can lock in your funds, a Regular FD might be more suitable due to the higher interest rates.
• Risk Tolerance: Both Flexi Deposits and Regular FDs are low-risk investments, but regular FDs offer more stability with fixed returns.
• Convenience: If you prefer a hassle-free investment that manages itself, the automatic sweep-in/out facility of a flexi FD can be highly convenient.

Both Flexi Deposits and Regular Fixed Deposits have their own set of advantages. Flexi Deposits offer greater flexibility and liquidity, making them suitable for those who need frequent access to their funds. On the other hand, Regular Fixed Deposits provide higher interest rates and are ideal for long-term financial goals. Evaluating your financial needs and investment goals can help you choose the right option. For more details on Flexi Fixed Deposit schemes, you can visit bajajfinservmarkets.in.