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Annuity Plan vs Fixed Deposit – Know the Differences
Posted on Thursday, February 6th, 2025 | By IndusInd Bank
There are a variety of investment options out there, from high-risk equity stocks to government-backed savings schemes. But, if you are planning for a long-term goal, such as retirement or your child’s marriage, it is crucial to choose options that are safe and reliable. Annuity plans and fixed deposits (FDs) are two choices you can consider in this aspect.
While a fixed deposit offers guaranteed returns over the tenure, an annuity plan provides a steady income stream, particularly post-retirement. Understanding the key differences between an annuity plan vs an FD is crucial to making the right choice for your financial needs. Here’s a breakdown of how both products work and which option may suit you best.
What is an Annuity Plan and How Does it Work?
- An annuity plan is an investment scheme offered by insurance companies. Here, you pay a lump sum or regular premiums to receive a steady income either immediately or after a specified period.
- Annuity plans are ideal for retirement planning. They provide a guaranteed income stream for the rest of your life or a specified number of years.
- There are two types of annuity plans:
- Immediate Annuity Plan: You make a lump sum payment, and the income starts immediately.
- Deferred Annuity Plan: You make regular payments, and the income starts after a deferred period, usually post-retirement.
What is a Fixed Deposit?
- A fixed deposit (FD) is a savings-cum-investment option offered by banks and financial institutions. It involves depositing a lump sum for a predetermined period at a fixed interest rate. At the end of the term, you receive the principal amount along with the interest.
- FDs are known for their guaranteed returns and are an ideal choice for risk-averse investors.
- If you are curious about how much you could earn from an FD, you can use an FD calculator. It gives you an estimate of the maturity value based on the tenure and interest rate.
- FDs also come with the option to receive interest payouts at regular intervals of your choice.
Thus, both annuity plans and FDs offer secure investment options. Due to such similarities, many people may want to know the exact differences between a deferred or immediate annuity plan vs a fixed deposit.
Differences Between Annuity Plans and Fixed Deposits
Here are the main points of difference between an annuity plan vs an FD:
| Parameter | Annuity Plans | Fixed Deposits |
| Objective | Designed for income during retirement. It provides a steady stream of income, either immediately or after a deferment period. | Safe investment option with an aim of wealth accumulation and appreciation over a specific tenure. |
| Returns | Returns are fixed; some plans also come with guaranteed lifetime income (post-retirement). | Returns depend on the fixed deposit interest rate; returns are predictable and guaranteed at maturity. |
| Liquidity | No flexibility or liquidity as the purchase price is locked (in most cases). | Offer better liquidity; premature withdrawals are allowed, albeit with a penalty. |
| Payout Structure | Offers periodic payments (monthly, quarterly, annually) depending on the plan chosen. | Pays out the interest either at regular intervals or upon maturity, as per your preference. |
| Taxation | Annuity income is taxable under the investor’s income tax slab. Taxation is applicable only after the annuitant starts receiving payouts. | Interest earned on FDs is also taxable. Tax Deducted at Source (TDS) is applicable for interest income exceeding ₹40,000 in a financial year (₹50,000 for senior citizens). |
Should You Opt for an Annuity Plan or an FD?
Choosing between an annuity plan vs an FD depends on your financial goals, risk appetite, and liquidity needs.
Annuity Plans are Ideal if You:
- Are approaching retirement and need a guaranteed source of income after your retirement.
- Prefer steady, periodic payouts rather than a lump sum at maturity.
- Want a low-risk, lifelong income plan to cover essential living expenses.
- Do not need access to the lump sum investment after the plan starts.
Fixed Deposits are Ideal if You:
- Are looking for a low-risk investment option to grow your savings over a specified period.
- Want flexibility in choosing your investment tenure.
- Prefer receiving a lump sum at maturity (with the option of regular interest payouts if needed).
- Require liquidity, as FDs allow for premature withdrawal, even with penalties.
Also Read: What’s the Difference Between NSC and an FD?
Conclusion
Both annuity plans and fixed deposits serve as secure investment choices. However, they cater to different financial objectives. Whether it is an immediate annuity plan vs fixed deposit, or choosing between other types of annuities and FDs, one must assess their financial needs before making a decision.
If you prefer to secure your capital with a fixed deposit, consider opening an FD account with IndusInd Bank. Enjoy high interest rates, hassle-free instant booking, tax-saver FD choices, auto-renewal features, multiple interest payout options, and more with IndusInd Bank. Apply now!
Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.
