Fixed Deposits V/S Endowment Plans
Published On Oct 12, 2021
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Endowment insurance is a type of savings plan that includes a small amount of life insurance. Premiums (savings contributions) are paid on a monthly basis and are determined based on the amount you want to receive at the conclusion of the plan's term. Endowment plans are "forced savings" since you must pay your premiums or your coverage would lapse. However, not all of your premiums will go toward the savings portion of your plan. A percentage of the premium will be used to cover the life insurance component. The standard coverage for life insurance is either 101 percent or 105 percent of your premiums paid, and it covers death, total and permanent disability, and terminal illness in some cases.
A fixed deposit account, on the other hand, is a low-risk, semi-flexible savings account that lets you increase your money. Comparable to endowment plans, you deposit money in the bank for a defined period of time, ranging from one week to three or more years. At the end of the time period, you will get your consented payment, as well as any additional interest (tenure). The interest you earn on a fixed deposit is predetermined at the start of the contract period, unlike endowment plans, whose returns fluctuate occasionally based on the profitability of the insurance fund.
Reasons To Choose Endowment Plans
Below are a few reasons to choose Endowment Plans:
You Have A Specific Objective In Mind For Your Savings
Endowment plans can be a useful method to acquire structured distributions for various life milestones because some are oriented toward a certain milestone. An endowment plan can be a valuable savings option if you want to save for events with predictable costs, such as university tuition, a wedding, a down payment, or retirement because you can choose your payout, plan tenure, and premiums. They're especially handy if you choose a retirement or education tuition endowment plan that pays out in cash when it's time.
Keep Your Life Insurance Up To Date
Because a portion of your premium goes toward a life insurance component, endowment plans may be less suitable for some people. Unlike life insurance plans, endowment plans' life insurance is rather modest and will not give adequate coverage on its own. Endowment plans, on the other hand, may be appropriate if you have a minor insurance gap and wish to enhance your savings at the same time. A fixed deposit account may be preferable if you have adequate life insurance.
Reasons To Choose Fixed Deposits
Below are a few reasons to choose Fixed Deposits:
You Need A Place To Put Your Money For A Brief Length Of Time
Some fixed deposit accounts have terms of less than a year, making them suitable options for consumers looking to keep their money in a safe place for a few months. You can choose a fixed deposit tenure as little as 3 or 6 months, unlike endowment programs, which normally need a 2-year commitment. Furthermore, while fixed deposit accounts may have 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 penalties and a cash value that is less than the total value of your premiums.
You'd Like To Invest In A Foreign Currency
A foreign fixed deposit account may be more suitable than an endowment plan since certain banks allow you to open an account in a foreign currency. While some endowment programs offer foreign currency options, they are usually confined to the US dollar. A foreign currency fixed deposit account could be a good alternative if you want to save in a foreign currency and generate some extra money from a favorable exchange rate. You should be aware, however, that there is always the risk of losing money if the exchange rate is unfavorable when your account matures.
To summarise, fixed deposit accounts and endowment plans are two investment options that are very comparable. They offer a wide range of tenures, deposit amounts, and, in some cases, returns. There are, nevertheless, significant distinctions to consider. Endowment plans, for example, include a life insurance component. They can also be customized for specific savings goals, such as schooling or retirement, and will pay out in cash on an annual or monthly basis.
Fixed deposits, on the other hand, are less hazardous and more accessible. They're also terrific options for saving in a foreign currency. When selecting a financial instrument, you should carefully consider both your objectives and risk tolerance, as well as the product's terms and conditions.
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.