Fixed Deposits Vs Recurring Deposits - Which one to choose

Fixed Deposits Vs Recurring Deposits - Which one to choose

When it comes to investments, Fixed Deposits (FD) and Recurring Deposits (RD) have been popular for decades. This is because the returns from FDs and RDs are considerably higher than what one can receive from savings accounts. Both fixed deposits and recurring deposits enable people to earn a higher interest on their savings. Many people keep only a small amount of money in their savings bank account and invest the rest in term deposit schemes such as an FD and RD.

When it comes to FD vs RD, there are different factors that make them suitable for different people. Despite being term deposit schemes, both fixed deposit and recurring deposit work differently. The working principle of these deposit schemes is simple, most people feel comfortable investing their money as compared to investing in stocks bonds, shares, mutual funds, etc.

If you are also wondering which one out of FD vs RD is better for you, they have been compared here for your reference:

Purpose: Fixed Deposits (FD) and Recurring Deposits (RD) are both financial instruments that allow people to earn interest on their investments. Both are safe investments since the returns are guaranteed. However, an FD allows a person to invest idle cash for a set amount of time anywhere from a few days to a few years while an RD requires the investor to deposit a pre-determined amount every month in the RD account.

Duration: The interest rate varies depending on the term and type of FD chosen. People can invest in an FD for at least 7 days to a maximum of 10 years. An RD account can be opened for a minimum and maximum duration of 6 months and 10 years respectively.

Interest Rate: The interest rate on FDs and RDs varies from one bank to another and also depends on the deposit tenure and type of FD/RD scheme chosen by the investor at the time of investment. The minimum principal deposit required for an FD and RD also varies for different banks. There are different Recurring Deposit schemes available to people. Some are specific for students, senior citizens, etc. and the interest rate also varies depending on the RD scheme. For the same time period and principal, the interest accrued on an FD is slightly higher than that on an RD. This is because the entire amount earns interest every month in the case of FD but in RD the first instalment earns the interest for the complete duration of the RD and the rest earn after they are deposited.

Partial Withdrawal: People can make partial withdrawals from their Fixed Deposits (FD) after paying a penalty set by the bank, usually 2% of the principal. For a withdrawal of over Rs. 20,000, the money is deposited in the depositor’s bank account. Partial withdrawals are not allowed for Recurring Deposits. For the foreclosure of FDs and RDs, the depositors have to pay penalties before their investment is returned to them based on the criteria set by the bank.

Tax: The interest earned from a Fixed Deposit or a Recurring Deposit is taxable. If the yearly interest in a financial year on an FD exceeds Rupees. 10,000, the bank deducts 10% as Tax Deducted at Source (TDS) for investors who have submitted their PAN and 20% for those who have not submitted their PAN with the bank. People who are not eligible for TDS can submit the Form 15G (Form 15H for seniors) to avoid TDS deduction. TDS is not deducted from the interest earned from a Recurring Deposit but the person has to file it in the IT return.


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