Worked Example
Savings-Account vs FD: which builds more wealth over 5 years?
Scenario
Rohit, age 30, software professional in Pune, ₹12 lakh annual income, ₹50K monthly expenses, exploring this question for his financial plan
Inputs
- Years
- 5
- FD tax %
- 30
- Amount INR
- 5,00,000
- FD return %
- 7
- Savings-Account tax %
- 30
- Savings-Account return %
- 3.5
Calculation
- 1.
Savings-Account effective post-tax rate
3.5% × (1 − 30% tax) → 2.45%
- 2.
FD effective post-tax rate
7% × (1 − 30% tax) → 4.9%
- 3.
Savings-Account corpus at year 5
₹5L × (1+0.024)^5 → ₹5.64 L
- 4.
FD corpus at year 5
₹5L × (1+0.049)^5 → ₹6.35 L
- 5.
Wealth difference
|564326 − 635108| → ₹70,782
Conclusion
FD wins by approximately ₹0.7 lakh over 5 years — driven by return rate.
Tradeoffs
Post-tax real returns matter more than nominal headline rates. FD loses more to taxation. Risk profiles differ too — guaranteed vs market-linked. Adjust for risk tolerance.