Investments are among the best methods to build wealth and achieve financial stability. With suitable investments, you can carry out all of your life goals, protect your family and deal with financial emergencies without any issues.
However, with the different types of savings plans available in the market, most individuals prefer low-risk options like fixed deposits and life insurance-based savings policies with guaranteed returns. However, choosing one among the two can be quite a hassle for individuals. So, let’s look at them individually and their differences to understand them better.
What are Fixed Deposits?
Fixed deposits are low-risk investment schemes. Fixed deposits are offered by banking and non-banking financial institutions. With an FD, you can invest a specific sum for a fixed tenure at a predetermined interest. The interest rate will differ for different financial institutions. However, the interest rate is higher than savings accounts. Therefore, a fixed deposit investment will not be affected by the interest rate changes in the economy. Along with this, the investment will also help you earn interest on interest. This way, you can earn decent profits.
What are Guaranteed Return Insurance Plans?
Guaranteed return insurance plans are savings insurance policies that offer you the benefit of wealth creation along with insurance cover. In guaranteed return plans, your premiums are split into two parts. The first part is kept for insurance coverage, and the second is kept for investment.
In guaranteed return savings plans, your insurer will choose low-risk investments like government-backed securities for investment. These pension plans can be quite helpful for your golden years.
Most insurers like Tata AIA also offer features like coverage for your spouse under the Tata AIA life insurance plan. They also offer tools like a wide range of savings calculators that help you choose the right savings insurance plan with the correct amount for saving.
Differences Between Fixed Deposits and Guaranteed Return Insurance Plans
Given below are some points that illustrate the FD vs Insurance comparison:
|Parameters||Fixed Deposits||Guaranteed Return Plans|
|Tenure||Fixed deposits are optimal for long-term and short-term investments. You can opt for a plan with duration ranging from 1 year to 5 years.||Guaranteed return plans offer life insurance coverage and guaranteed returns for the tenure of 10 years, which can go up to a lifetime.|
|Investment||You can begin investing in fixed deposits with a minimum sum of ₹1000 (differs from bank to bank) . There is no limit on the maximum amount you can invest. The bank will calculate the interest based on the investment amount chosen. A high investment will lead to high returns in the long term.||The premium amount for a guaranteed return plan will differ for different insurance plans. They are also set based on different factors like your age at the time of purchase, sum assured amount, health issues, riders, etc.|
|Withdrawals||Fixed deposit plans offer the option of a partial withdrawal. But, breaking the FD investment before it reaches maturity will impact the interest rate of the investment, and you may get a low return on investment through it.||With guaranteed return plans, you can make a withdrawal once the policy’s lock-in period is over. The lock-in period for guaranteed return plans is generally around 3 years.|
|Guaranteed benefits||A fixed deposit investment will offer a fixed amount as returns on the investment as mentioned in the document at the time of purchase.||Policies like the guaranteed return plan offer you a guaranteed and regular income flow so you can deal with your monthly expenses. Most insurers offer the flexibility to select the payout method.|
|Tax benefits||Fixed deposit investments do not come with any tax benefits.||With guaranteed return insurance plans, you will get tax benefits on the premium amount you have paid and the maturity and death benefit you obtained through the plan.|
Therefore, if you’re looking to earn low-risk profits without any added benefits, opting for fixed deposits would be suitable. However, if you’re looking to get insurance coverage along with profits through investment, opting for guaranteed return plans will be a better idea.
Both fixed deposits and guaranteed return plans have their unique features. Guaranteed return savings insurance plans offer you the dual benefit of insurance coverage and wealth creation. Fixed deposits are optimal for low-risk investors. Selecting one between the two would depend on your preferences and requirements from the investment. It would help to look through the FD vs Insurance comparison before purchasing a plan.