ArticlesFixed Deposit vs Recurring Deposit Investment Differences Which is Better Option FD...

Fixed Deposit vs Recurring Deposit Investment Differences Which is Better Option FD or RD?

If there is a problem in choosing between Fixed Deposit and Recurring Deposit, then you have to first understand your needs. Keeping in mind your financial goals, you can choose the right option.

Fixed Deposit vs Recurring Deposit: If you have recently started your career and want to start saving money for your future needs, then the best way to start it is by making a term deposit in a bank. Term deposits earn more interest than savings accounts. Not only this, you can use this money very easily in an emergency or in needs like travel.

Making a term deposit is quite easy. You can do this through your bank app or by visiting the branch. It is also very easy to withdraw money when needed. If you are going to start saving then you must know how these term deposits work. There are mainly two types of term deposits- Fixed Deposit (FD) and Recurring Deposit (RD).

If you had to choose between FD and RD, which would you choose? These are non-market linked fixed return financial instruments. If you are finding it difficult to choose between these two, then you have to check their features and understand which one of these options is right according to your financial goals. Let us understand which option is better for you as per the requirement.

What is Fixed Deposit?

Fixed deposit is a savings instrument, under which interest is earned on the money deposited for a fixed period. When the tenure is over, the deposit amount matures and is returned to you. Investors have the option to choose between cumulative and non-cumulative interest options in FDs.

In Cumulative Interest FD, you get the principal and compound interest on maturity. Whereas, in non-cumulative FDs, you have the option to receive interest at regular intervals, i.e. monthly, quarterly basis.

Generally, investors who are young and have other sources of income prefer cumulative FDs. Also, senior citizens or people who want a regular income post retirement can choose non-cumulative FDs for regular interest. Let us understand TDS on FD with an example.

Suppose you (a non-senior citizen) deposited Rs 10 lakh at 7% interest for a tenure of 5 years. After TDS, the maturity amount will be Rs 13.68 lakh. Bank deducts TDS of Rs 40888 in 5 years.

The depositor cannot avail of compounding on the amount that the bank deducts as TDS. TDS is deducted in case of company deposits if the interest income exceeds Rs 5000 in a financial year.

If you have a lump sum amount and want to invest them to earn returns with less risk, then Fixed Deposit is a good option for you. You can deposit money in big banks where money is safe and returns are also decent. You can also invest in smaller banks which give good returns, though they are considered less secure.

What is Recurring Deposit?

Recurring deposits are monthly savings instruments for fixed interest and fixed tenure. Like FD, on RD also you get the same interest throughout the tenure, which is agreed at the beginning of the tenure. However, unlike FD, RD allows depositors to save in installments. This means that every month a certain amount is deducted from your bank account.

There is no tax saving option in RD, but in FD you have the option of tax saving FD for five years to save tax under section 80C. In RD, most of the banks give interest on the maturity of the deposit whereas in FD you get the option of interest at regular intervals. RD is a good option for risk averse investors. In this, a large fund can be created while saving in installments for a certain period.

Which Option is Better

Fixed deposit is a lump sum investment. Therefore, in this you get more returns than RD. Take a look at this table here to understand the difference in interest returns between FD and RD.

The choice of either FD or RD depends on the amount of fund available with you at the time of investment. If you have a large corpus to invest for a fixed tenure, you can opt for an FD as it can give you higher compounding benefits. However, if you want to invest a fixed amount every month, RD is a better option. It is important to keep your financial goals in mind while choosing between FD and RD.

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