Best Savings Plans vs Money Back Policies: Pros and Cons

It might be a bit puzzling to decide where to invest your hard-earned money, especially when you are bombarded with so much financial jargon that you lose track. Two of the most discussed investment options among people in India are savings plans and money-back plans.

Both of them can help you save money and secure your family; however, they operate in different ways. We will explain both of them using simple language so that you can decide which one suits your lifestyle.

What is a savings plan?

A savings plan is like a digital piggy bank, which is locked, and the money inside it increases as time goes by. You fund it regularly, monthly or yearly. The company managing your money will not only keep it safe but will also make it grow. After a certain number of years, you will be given the amount in one big payment.

In fact, the best savings plan options also provide you with life insurance. So, if something unfortunate happens to you, your family will get a significant amount of money for their sustenance, groceries, housing, and other chores.

Advantages (Pros)

• Ability to accumulate Big Wealth: Your investments are locked up for a long time, so it allows the money to grow. You receive a huge sum of money at the end, which will be helpful for achieving your major goals, e.g., buying a house or paying college fees.
• Encourages you to save: It actually makes you save since you cannot withdraw the money easily; you will only spend it on your daily cravings or shopping.
• Provision of Life Cover: Including insurance cover provides that your family will always be secure, irrespective of what happens.

The Bad Things (Cons)

• No Quick Cash: Your funds are locked in. Should you require cash suddenly next year for a minor emergency, you will not be able to access it easily without incurring a substantial penalty.

What is a Money Back Policy?

A money back policy works on a completely different basis. Rather than making you wait till the very last to get your money, it rewards you with survival benefits, which lead to smaller cash payments every few years.

Suppose you opt for a 20-year plan, then the company may return to you 15% of your insured money every 5 years. Finally, at the expiry of the 20 years, they will give you the remaining amount, along with any additional bonuses.

The Good Things (Pros)

• Regular Cash Flow: You receive cash payouts at consistent intervals. This is excellent if you are aware of large expenses occurring periodically, such as a child entering high school or periodic home maintenance.
• Liquidity (Easy Access to Money): You are not constrained to wait for decades to reap the results of your savings. A continuous flow of income is provided to you even as you maintain your life insurance.
• Peace of Mind: Anticipating a check every few years is a great source of reassurance for many families.

The Bad Things (Cons)

• Lower Final Payout: Since the insurer is disbursing money to you every few years, these funds do not have the opportunity to accumulate. Therefore, the overall amount you receive finally will be significantly less than a standard savings account.
• Slightly Higher Cost: These schemes are occasionally priced a tad higher, as the company has to deal with and send out payouts regularly.

Which One Should You Decide On?

Well, your decision will be based only on what your family really needs.

Opt for a Savings Plan if:

You are searching a top savings plan for storing money for a major goal that is far in the future. For instance, if you are thinking about setting up a fund for your child’s higher education or simply want to keep a sizable retirement nest egg, having the money locked up for growth is the best move.

Opt for a Money Back Policy if:

You are looking for a trustworthy money back policy since you will need cash on hand at regular intervals to fund your life stages. Say, if you want a plan that assists you in paying your child’s school fees every four years, or if you want extra money for a family trip without any worries, then the regular payouts will be just right for you.

Summary

Both of these financial products are safe and reliable ways to take care of your family’s future in India. They eliminate the risk of investing your money in unstable markets and ensure that you are setting aside some funds each month.

Discuss with your family, review your anticipated expenses over the next ten to twenty years, and settle on the one that gives you the greatest sense of security. Saving even a small amount today can really make a big impact tomorrow.