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In the ever-changing landscape of personal finance, Indians have many investment options. Fixed Deposits (FDs) and Recurring Deposits (RDs) are two popular choices.
FDs and RDs are secure investment avenues offered by banks and financial institutions in India. In this blog, we will get into the FD and RD differences, empowering our readers and enabling them to make informed financial decisions. We will also try to answer the, almost universal, query — FD or RD, which is better?
So, let’s get started.
Table of Content
What is a Fixed Deposit?
A fixed deposit is a savings account where you deposit a lump sum for a fixed period. The bank will pay you interest on your deposit, and you will get your money back at the end of the term, plus the interest earned.
The interest rate on FDs is usually higher than savings accounts, but you must lock your money in for a fixed time. This means you cannot access your money before the end of the term unless you pay a penalty.
What is a Recurring Deposit?
A recurring deposit is a savings account where you deposit a fixed amount of money every month for a fixed period. The bank will pay you interest on your deposits, and you will get your money back at the end of the term, plus the interest earned.
The interest rate on RDs is usually lower than on FDs, but you do not have to park all of the amount at once in and RD. This makes RDs a good option for people who want to save money on a regular basis but may need to access their money in an emergency.
Key Difference Between Fixed and Recurring Deposit
Here is a table that summarises the key difference between FD and RD:
Differentiating Factor |
Fixed Deposits |
Recurring Deposits |
Investment Pattern |
In an FD, a lump-sum amount is invested at once. |
In an RD, a fixed sum is invested at regular intervals. |
Interest Rate |
FDs generally offer higher interest rates compared to RDs. Once the fund is deposited, the interest rate remains unchanged for that tenure. |
Although subject to change, RD interest rates can remain stable throughout the RD tenure once the account is opened. |
Liquidity |
Premature withdrawals may attract penalties and lower interest rates. FDs offer more flexibility in this regard, with banks providing partial withdrawals in emergencies |
Premature withdrawals may attract penalties and lower interest rates. RDs typically don't offer provisions of partial withdrawal. |
Regular Savings vs. Lump-Sum Investment |
FDs are better suited for individuals with a significant amount to invest at once, seeking assured returns. |
RDs promote a disciplined approach to saving by encouraging individuals to invest a fixed sum regularly. |
Maturity Amount |
Due to the power of compounding, FDs generally yield a higher maturity amount. The interest in an FD is compounded annually. |
RDs offer less maturity amount as the interest is compounded every quarter. |
Benefits of a Fixed Deposit
Fixed deposits (FDs) are one of India's most popular investment options. It is safe, secure, and convenient for all people. They offer many benefits, including:
- Guaranteed1 returns: When investing in an FD, you are guaranteed to receive a fixed interest rate. This makes them a safe and secure investment option, especially for risk-averse investors.
- Higher interest rates than savings accounts: The interest rates on FDs are typically higher than those offered on savings accounts. This means you can earn more money by investing in an FD.
- Flexible tenure: You can choose the tenure of your FD, ranging from 7 days to 10 years. This allows you to choose an investment term that suits your needs.
- Tax* benefits: You can avail of tax* benefits under Section 80C of the Income Tax* Act if you invest in a five-year tax*-saving FD.
- Easy liquidity: You can easily access your money from an FD by making a premature withdrawal. However, there may be a penalty for premature withdrawal, depending on the terms of your FD.
Benefits of a Recurring Deposit
RDs are a safe, secure, and flexible investment option that offers the potential for higher returns than savings accounts. Its benefits include:
- Guaranteed1 returns: The interest rate on an RD is fixed for the entire tenure, so you know exactly how much you will earn. This makes it a safe and secure investment option, especially for risk-averse investors.
- Easy to start: You can start an RD with a small amount, which makes it a great option for people who want to save money but don't have much to spare.
- Flexible tenure: You can choose the tenure of your RD, ranging from 6 months to 10 years. This allows you to choose an investment term that suits your needs.
- Tax* benefits: You can avail of tax* benefits under Section 80C of the Income Tax* Act if you invest in an RD.
- Easy liquidity: You can easily access your money from an RD by prematurely withdrawing. However, there may be a premature withdrawal penalty, depending on your RD's terms.
Recurring Deposit Vs Fixed Deposit — Which is Better?
Whether an FD or RD is better depends on your circumstances and investment goals. Here is a comparison of the two investment options to help you decide which is right for you:
Pros
Pors of FD and RD |
Fixed Deposit (FD) |
Recurring Deposit (RD) |
Guaranteed1 returns |
✓ |
✓ |
Higher interest rates than savings accounts |
✓ |
✓ |
Flexible tenure |
✓ |
✓ |
Tax* benefits |
✓ |
✓ |
Easy liquidity |
✓ |
✓ |
Easy to start with a small amount |
— |
✓ |
Cons of Fixed Deposit (FD)
You have to invest a lump sum amount
There may be a penalty for premature withdrawal
Cons of Recurring Deposit (FD)
You have to invest a fixed amount every month
The interest rate is lower than an FD
Ultimately, the best way to decide which investment option is right for you is to consider your circumstances and investment goals.
Is an Insurance Policy a Good Way to Save Money?
Buying a good life insurance is often regarded as the first step towards an investment journey. Once you financially secure the life of your loved ones, you can focus on wealth building through various plans. You can also choose any of Tata AIA Life Insurance Plans that offer market-linked# returns as well as insurance coverage.
We offer a wide range of life insurance plans to suit your needs. You can work with our financial advisor to choose the right plan for you and your family.
