Endowment Plans V/S Fixed Deposits - What Should I Choose?
Published On Dec 13, 2021
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Endowment insurance is a type of savings plan that also includes a small amount of life insurance. You pay monthly premiums (savings contributions) based on the amount you desire to receive at the conclusion of the plan's term. Because you must pay your premiums or your policy will lapse, endowment plans are known as "forced savings." However, not all of your premiums will be used to fund your savings account.
A fixed deposit account is a low-risk, semi-flexible savings vehicle. You deposit money to the bank for a set period of time, which might range from one week to three or more years, similar to endowment plans. You will receive your agreed-upon cash as well as any accrued interest at the conclusion of the time period (tenure). In contrast to endowment plans, whose returns are occasionally based on the performance of the insurance fund, the interest you earn on a fixed deposit is pre-determined at the start of the contract period.
Reasons To Choose Endowment Plan
Below are a few benefits you must consider if you choose an Endowment plan:
You Want To Save For A Specific Purpose
Endowment plans can be a useful way to acquire structured distributions for specific life events because some are oriented at a specific milestone. An endowment plan can be a good way to prepare for events with predictable costs, such as university tuition, a wedding, a down payment, or retirement because you can customize your payout, plan duration, and premiums. They'll come in handy if you choose a retirement or education tuition endowment plan that pays out in cash when the time comes.
You Want To Save Money But Also Need To Keep Your Life Insurance Up To Date
Because a portion of your premium goes towards a life insurance component, endowment plans may be less suitable for some people. Endowment plans' life insurance, unlike life insurance policies, is relatively modest and will not provide adequate coverage on its own. Endowment plans, on the other hand, are a good option if you have a minor insurance gap and want to build your savings at the same time. A fixed deposit account may function better if you have enough life insurance.
Reasons To Choose Fixed Deposit
Below are a few benefits you must consider if you choose a Fixed Deposit:
You Need A Place To Put Your Money For A While
Some fixed deposit accounts have terms of less than a year, making them suitable options for those looking to stash money for a few months. Unlike endowment plans, which normally demand a 2-year commitment, fixed deposit terms can be as short as 3 or 6 months. Furthermore, while fixed deposit accounts may impose early termination fees and you may lose some or all of your interest, you can still get your money back. Terminating your endowment plan early, on the other hand, can result in termination fees as well as a cash value that is less than the total value of the premiums you paid.
You Desire A Low-Risk, Guaranteed-Return Investment
Fixed deposits lock in your interest rate at the start of your contract, so you'll know exactly how much you'll get when the term ends. You won't have to pay any bank fees, and you won't have to engage in any more banking habits. These rates will be disclosed upfront and are usually tied to the deposit quantity and duration. The average interest rate is 0.41 percent due to the short term (3 or 6 months) and little deposit (S$5-S$10k). A large deposit (S$100,000 or more) with a long term (24 or 36 months) earns 1.20 percent on average. Throughout the term of your account, the rate you agree to will not vary.
To summarise, fixed deposit accounts and endowment plans are two investment options that are somewhat comparable. Their tenures, deposit amounts, and, in some cases, returns are all flexible. There are, however, key distinctions to be aware of. Endowment plans, for example, include a component for life insurance. They can also be customized to meet specific savings goals, such as schooling or retirement, and will pay out in cash annually or monthly. Fixed deposits, on the other hand, are safer and easier to get. If you want to save in a foreign currency, these are also fantastic options. Always keep in mind your objectives and risk tolerance when selecting a financial product, and read the product's terms and conditions thoroughly.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.