Fixed deposit (FD) v/s Recurring deposit (RD) - Which one to choose from




The important factor about fixed deposit and a recurring deposit is the fixed returns you get and the safety of money invested. But when you compare the two, a fixed deposit is better than a recurring deposit and gives you more returns.

At time’s investors get confused whether to invest in a fixed deposit or a recurring deposit for their investment objectives and to achieve their goals. The important factor for both these instruments is they are fixed and both are safe investments. But when you compare the two, a fixed deposit gives you higher return than a recurring deposit. Let’s have a look how these two products differ in the earnings and which one is better for you.


Features

 Fixed Deposits and Recurring Deposits are fixed income products available from banks. On the invested amount banks pay you a fixed rate of interest which can be at a specific frequency till the term or on maturity. At the end of the term, the maturity amount which is your invested capital, along with remaining or accumulated interest is paid to you . Although the interest of banking products change with interest rates scenario, in both these products once you have invested the interest rate remains same throughout the term. In recent times the high rising rates have prompted banks to offer high interest rates on these two instruments and so the attraction of investors has increased manifold.

Difference In maturity amount.

In the Below table you can clearly see that the returns you receive in fixed deposit is more than recurring deposit. There is a difference of Rs.2314. The reason for the difference is the Investment amount in FD earns interest for an entire year,where as in RD the First Installment earns for a year,second installment earns for 11 months, Third installment for 10 Months and so on.









Taxation

Both these products have the same taxability. The interest received from these two is is added to your total income and taxed at your personal income tax rate. So if you are in 30% tax slab, the interest from FD & RD will be taxed at the same rate. Both In a fixed deposit and Recurring deposits , banks deduct TDS if the interest income in a year exceeds Rupees 10000.

Which one to choose FD & RD?

Since FD earn higher than RD, it’s not feasible for a single product to meet all your needs. When you don’t  have a lumpsum money to invest but can save a defined amount from your income every month, a recurring deposit is a more suitable product. With it you can achieve an objective of regular savings for your medium term needs. But when you have a lumpsum money to invest then Fixed Deposit is a wiser choice.

Although both these banking products appeal to all class of investors, it is more lucrative for small investors who are mostly in lower tax slab. The less or non-taxability of interest along with high interest payout in today’s scenario ensures a good fixed earnings for their goals. Avail them as they will help in meeting certain objectives but do take all associated factors into consideration.


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