FD vs RD – Have a Look at a Detail Comparison
A fixed deposit (FD) and recurring deposit (RD) are two secured and safe investments options offered financial institutions and NBFCs. These produce higher interest rates on savings, as compared to a savings account. This is the reason that people choose to devote a smaller sum in their savings account, and invest a greater portion in fixed or recurring deposits.
While choosing between FD vs RD, the individual has to determine which among the two is better in terms of investment option. He/she must consider the agenda, needs and available fund behind the investment before selecting out of the two. Apart from that, the individual must also understand the distinct features and mechanism of both.
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A brief idea on FD vs RD
Although both FD and RD are term deposits, they do differ on points like mechanism, purpose, duration and so on. The points that distinguish FD vs RD are as follows-
An individual can invest a sum of money in FD for any period of time ranging from 1 year to a maximum of 5 years.
While in RD, he/she is bound to invest a pre-determined sum of money every month. The minimum and maximum term of an RD account are 6 months and 10 years. Both RD and FD tenor affects the interest rate you are entitled to.
- Sum to be invested
Since a fixed deposit is a one-time investment, it requires you to invest a comparatively larger sum as compared to recurring deposit. The higher the amount invested the more returns you earn.
Recurring deposit, on the other hand, is a periodic and constant investment. Thus, it allows you to invest amounts as low as Rs. 500.
- Interest rates offered
Fixed and recurring deposit interest rates also vary from one financial institution to another. Even though both interest rates lie on similar lines, a fixed deposit is likely to bring higher returns as compared to recurring deposit.
NBFCs also plan FD and RD schemes for senior citizens, students, etc. Companies like Bajaj Finserv have Senior Citizens Fixed Deposit, which offers 0.35% more interest. For other customers, the interest rate on FD is as high as 8.70%.
You can withdraw money partially after certain intervals from fixed deposits by paying the stipulated penalty charges (which is usually 2% of the principal amount).
Partial withdrawals are not applicable to recurring deposits. RDs can only be closed by the investor by paying the penalty sum as charges by the institution.
- Returns on your investment
In the case of FDs, an individual earns interest on the entire principal amount, on a monthly, quarterly or half-yearly basis. Whereas, interests earned on recurring deposits are on a recurring basis. In terms of this calculation, an individual earns higher returns on fixed deposit than recurring deposit interest rates.
- Virtues it inculcates
In a fixed deposit, an individual usually has to invest a lump sum amount.. In case an individual has idle cash with him, he/she can make proper use of it by investing it in a fixed deposit.
Recurring deposits, however, requires the investor to be punctual and careful about his/her timely deposits. This would instil a sense of discipline and responsibility in the investor.
Similar attributes of fixed deposit and recurring deposit
Although FD and RD differ from each other on several points, there are certain aspects which are common to both –
- Both FD and RD are term deposits as the interest rates and span of investment is pre-determined in both.
- Fixed deposit returns and recurring deposit returns are subject to tax rebates in case the total yearly interest income from it crosses Rs. 10,000. TDS amount of 10% is deducted from an individual’s interest income if it surpasses the same.
However, if his/her total annual income is below the taxable limit, he/she can submit Form 15G to the concerned financial institution to get TDS amount waivered. In case of senior citizens, its counterpart is Form 15H.
A proper study of FD vs RD can help the depositor figure out which out of the two meets his investment requirements the best. Both the investment instruments are a safer alternative as compared to mutual funds, stock bonds and share marketing.
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 HighlightStory