The full form of FD is Fixed Deposits and the full form of RD is Recurring deposits. Both are saving methods that provide investors with stable returns and investment security. Both these investment methods are the go-to investment option for risk-averse investors who want fixed returns on their money and do not want to depend on market situations. These fixed-income financial instruments can confuse an investor, and they may find it difficult to decide which one to choose. Here is your complete guide to Fixed Deposits and Recurring Deposits to let you choose the most suitable investment type.
What is a Fixed Deposit?
A Fixed Deposit is a financial offering by banks in which the investor can deposit an amount for a fixed tenure. The returns on a Fixed Deposit are decided when the FD account is opened. The interest rate in FD remains constant for the term of the FD and does not change with changing economic environment and market conditions. An investor can invest in a Fixed Deposit for a tenure of their choice, ranging between seven days and 20 years.
Calculating interest on FD can help you understand how much money you will have at the time of the FD’s maturity. You can invest in a cumulative FD in which your interest income gets reinvested along with your principal investment to give you the benefit of interest on interest. It further increases your income from an FD.
Who Should Invest in a Fixed Deposit?
FDs are best suited for investors who do not want to put their hard-earned money at risk but want a better return than a savings account. The interest returns of a Fixed Deposit account are better than a Savings account, offering the same amount of security on your money. If you want a regular income source, you can invest in a non-cumulative FD, which gives periodic interest payouts.
What is a Recurring Deposit?
A Recurring Deposit is a term deposit in which an investor can deposit a pre-decided amount every month to meet a financial goal at the end of the RD term. A Recurring Deposit helps develop a habit of savings in the investor. It helps them get closer to their financial goal every month without bearing any significant financial burden.
An investor can invest in a Recurring Deposit for desired tenure ranging from six months to 20 years. The interest returns on Recurring Deposits are the same as a Fixed Deposit and remain constant for the entire term of the Recurring Deposit.
Who Should Invest in a Recurring Deposit?
Recurring Deposits help develop an attitude towards saving. You can invest a small amount of your earnings every month in a Recurring Deposit and get interest returns on it. You get the principal and interest payments when the Recurring Deposit matures and use the amount you have saved through RD to meet your financial goals and expenses.
Differences Between a Fixed Deposit and a Recurring Deposit
1. Deposit frequency
Fixed Deposits are a one-time investment. The investor invests a lump sum amount when they open an FD account and enjoy interest returns at the time of maturity of the FD or periodic intervals throughout the FD’s tenure. Recurring Deposits are term deposits in which the investor invests money in a monthly, quarterly, semi-annually or annual mode.
You can open an FD account between seven and 20 years. A Recurring Deposit has a tenure of six months to 20 years.
3. Minimum Investment Amount
The minimum amount an investor can invest in an FD is usually Rs. 5,000. On the other hand, an investor can open an RD account for as little as Rs. 1,000 you deposit at pre-decided intervals.
4. Interest payouts:
An investor can get the interest payout on maturity or at periodic intervals in an FD. In the case of an RD, the investor gets the interest payout only when the RD matures.
The Final Word
Choosing which option is better between Fixed Deposit and a Recurring Deposit depends on the type of investment you want to make. You can opt for an FD if you have a lump sum. The interest rate in FD is higher than an RD because the interest is calculated on the whole invested amount. To check interest on FD, use a calculator and know your returns before investing.