How to Save Smartly for a Dream Wedding: A Step-by-Step Guide

Your wedding day is one of the most special moments in your life, but it can also be a significant financial undertaking. According to a recent study by WeddingWire India, the average cost of an Indian wedding has increased to ₹28 lakhs in 2023. Planning and hosting a wedding can be financially demanding, often requiring meticulous budgeting and disciplined savings. If you’re planning a wedding and have set your sights on a grand celebration, building a solid savings fund is crucial to ensure you’re financially prepared for the big day.

In this blog, we’ll discuss how to build a strong savings fund for your wedding using various savings options, including Fixed Deposits (FDs), Savings Accounts, and Recurring Deposits (RDs).

Building a Savings Fund for Wedding: Tips and Strategies

1. Setting a Wedding Budget

Before you can start saving, the first step is determining how much money you need for your wedding. Wedding costs can vary greatly depending on the size, location, and type of celebration you’re planning. Expenses may include the venue, catering, clothing, decor, photography, and gifts, among other things.

Let’s assume your wedding cost estimate is ₹10 lakh. Based on this, you can work backward to figure out how much you’ll need to save each month or year to reach your goal.

2. Choosing the Right Savings Tools

To build a wedding savings fund, it’s essential to choose the right savings tools that can help you grow your money while minimising risk. Three popular options to consider are Fixed Deposits (FDs), Savings Accounts, and Recurring Deposits (RDs). Let’s break down each of these options.

1. Fixed Deposit (FD): A Safe and High-Interest Option

A Fixed Deposit (FD) is a popular savings tool that offers a higher interest rate than a regular savings account. You lock in your money for a predetermined period (e.g., 6 months, 1 year, 5 years) and earn interest on it. This is ideal for those who have a lump sum amount to invest and want to earn interest without taking on significant risks. The interest earned is typically higher in FDs compared to savings accounts.

Best for: Those who can save a lump sum amount and can afford to lock the money away for a set period.

Pros: Higher interest rates, safety of capital, predictable returns.

Cons: Cannot access the money before maturity without a penalty.

2. Savings Account: Easy Access with Lower Returns

A savings account is the most flexible option, offering easy access to your funds and relatively lower interest rates compared to FDs and RDs. This option is ideal if you want liquidity and easy withdrawals but don’t mind earning lower interest. It’s also great for managing day-to-day expenses while keeping your wedding savings separate.

Best for: Short-term savings, emergency funds, or people who need easy access to their money.

Pros: Liquidity, minimal risk, no penalties for early withdrawals.

Cons: Low interest rates, typically lower than FDs or RDs.

3. Recurring Deposit (RD): A Fixed, Regular Savings Plan

A Recurring Deposit (RD) is a deposit scheme that allows you to save a fixed amount of money each month for a fixed tenure. You earn interest on your monthly deposits, and the rate is typically higher than that of a savings account often at par with FD. RDs are ideal for individuals who want to save monthly for a long-term goal, such as a wedding.

Best for: People who want to save a fixed amount each month and prefer regular contributions.

Pros: Fixed interest rate, encourages disciplined saving, higher interest than savings accounts.

Cons: Limited flexibility in withdrawing funds early, less liquid than savings accounts.

How Much Do You Need to Save for a ₹10 Lakh Wedding?

To make things easier, let’s use the example of a wedding that costs ₹10 lakh. Assuming you have a fixed period to save, say 2 years, let’s calculate how much you would need to save each month to reach your goal. We’ll look at different savings methods: Fixed Deposit (FD), Savings Account, and Recurring Deposit (RD).

Assumptions:

1. Wedding cost estimate: ₹10,00,000
2. Time frame: 2 years (24 months)
3. Interest rate:

• Fixed Deposit (2 years): 8.20% p.a.
• Savings Account: 5% p.a. for account balance up to ₹5 lakh
• Recurring Deposit (2 years): 7.75% p.a.

Let’s calculate the monthly savings needed for each option assuming compound interest for FD and RD.

Formula for Monthly Savings:

The formula for calculating monthly savings (PMT) to achieve a future value with compound interest is:

PMT=(1+r)n−1FV×r

Where:

• FV = Future Value (₹10,00,000)
• r = Monthly interest rate (annual interest rate ÷ 12)
• n = Number of periods (months)

We will apply this formula for each savings option.

1. Fixed Deposit (FD): 8.20% p.a.

The monthly interest rate is 128.20%=0.683% or 0.00683.

Using the formula for FD, we get:

PMT=(1+0.00683)24−110,00,000×0.00683

2. Savings Account: 5% p.a.

The monthly interest rate is 125%=0.4167% or 0.004167.

Using the formula for a savings account, we get:

PMT=(1+0.004167)24−110,00,000×0.004167

3. Recurring Deposit (RD): 7.75% p.a.

The monthly interest rate is 127.75%=0.6458% or 0.006458.

Using the formula for RD, we get:

PMT=(1+0.006458)24−110,00,000×0.006458

Let’s now compute the values:

1. Fixed Deposit (FD):

Using the formula for FD, the monthly savings required for a ₹10 lakh wedding with 8.20% annual interest for 2 years is approximately ₹39,536.

2. Savings Account:

For the savings account with 5% annual interest, the monthly savings required for ₹10 lakh in 2 years is approximately ₹41,611.

3. Recurring Deposit (RD):

For the recurring deposit with 7.75% annual interest, the monthly savings required for ₹10 lakh in 2 years is approximately ₹40,186.