Fixed deposits (FD) and recurring deposits (RD) are considered as steady and trustworthy mode of investment. Millions of people around the country consider these as the best investment choices. But what to choose among these two is a question. Many of us might not be aware of the basic differences between FDs and RDs. Mentioned below are some of them:-
What Are Fixed Deposits And Recurring Deposits?
Fixed deposits are those forms of savings where people can invest a sum of money and earn interest according to their choice until the maturity date.
Recurring Deposits, on the other hand, are that kind of money saving accounts where one can invest a certain sum of money every month and the interest is applicable to the final amount payable.
FD and RD, both offer a secure and attractive source of investment as they help to plan out our investment goals. However, there are certain factors where they stand differently. Let us have a closer look and distinguish between the two deposit schemes.
Differences between FD and RD
Here are some notable differences between FD and RD:
- Interest payment- In an RD, a fixed sum of money as per your choice goes every month and you can choose any tenor ranging from 6 months to 10 years. For a fixed deposit, you can choose to deposit for any tenor ranging from 7 days to 10 years. The principal amount has to be deposited once.
- Principal amount- You can start an FD with a minimum amount of Rs. 100 only, although it varies over banks and NBFCs. The maximum amount for investing into FDs is also variable and depends on which bank or NBFCs you choose for the same. In the case of RDs, the minimum deposit amount is Rs. 500 and the maximum amount is up to your choice.
- Tax benefits– Under Section 80C of the Income Tax Act, anyone can claim for deductions for investments up to Rs. 1.5 lakhs in tax-saving FDs. But these tax-saving FDs have a lock-in period of 5 years. However, no such facility is available with RDs.
- Interest payout- In fixed deposits, the interest can be earned either monthly or quarterly or annually depending upon your choice, while in case of RDs, the interest is only payable annually and not between the year.
- Returns- In case of Fixed Deposits, the interest earned is dependent on the deposit amount and would surely succeed the principal amount. However, RDs offer interest on a recurring basis, so, the first instalment would be earned after 12 months, and thereafter, the second instalment would earn interest after 11 months and so on, until the end of the deposit term.
An FD offers better returns as compared to an RD, even if the interest rate is the same for both the investments. It is advisable to check the rates from different financiers. You can use the Fixed Deposit Interest Calculator or Recurring Deposit Interest Calculator to compare the interest rates and returns across various financiers.
The 2020 fixed deposit rates across banks are in the range of 4%-6% across banks. However, with some NBFCs such as Bajaj Finance, you can earn higher interest rates up to 7.35%. You can also consider the Systematic Deposit Plan from Bajaj Finance which offers the same level of flexibility as an RD plan, but higher returns like an FD.
FD and RD are the safest investment instruments trusted by millions of investors having diverse portfolios. However, there are some fundamental differences between the two and the choice amongst these two investments depends on various factors such as availability of principal amount and tenor of investment. The tenor of FD ranges between 7 days to 10 years, while the tenor of an RD varies between 6 months to 10 years. In an FD, the entire principal amount is deposited at the time of opening the FD account, hence it fetches better returns as compared to an RD where the principal amount is deposited on a monthly basis. Bajaj Finance FD offers one of the highest 2020 fixed deposit rates up to 7.35%.
Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at Highlight Story.