For decades, Indian families have been saving money in banks in the form of recurring deposits and fixed deposits. These are two of the most basic forms of savings offered by all banks. They help you make a savings corpus which you can use in the future for important expenses. Upon maturity, you receive the investment amount along with an interest. FDs and RDs are some of the safe instruments to put your hard-earned savings in, as they are not market-linked and are pure savings instruments that do not carry any risk.
Often, people get confused between FD vs RD and are not sure about which one to invest in. Here’s some help.
What is a fixed deposit?
A fixed deposit is a long-term investment in which you deposit a large sum of money at once and withdraw it after a maturity period as chosen by you. The interest is credited to your account either quarterly or monthly.
What is a recurring deposit?
For an RD, you have to select a tenure, which is usually around one to ten years, as per the bank or institution of your choice. But you do not need to make a one-time lump sum deposit. You deposit a fixed sum per month, and earn an interest amount on a per month basis. Upon maturity, you will receive your total investment as well as interest. The interest remains constant all through your investment period.
Similarities between FD and RD
- FD and RD are both fixed investments in which the interest rate stays constant throughout the tenure and returns are guaranteed.
- Interest rates are almost similar and increase with an increase in tenure.
- You can have a joint account for both FD and RD.
- Both can be opened in the name of a family member and make for a good gift.
- Both instruments can be used to plan for life goals like a wedding, arrival of a child, buying a house, buying a car, etc. with full faith as you know exactly how much money you will get upon maturity.
- In both cases, premature withdrawal is possible but with a penalty, depending upon your bank.
- Both instruments are taxable. If an interest greater than Rs. 10,000 is earned in a particular financial year, it is added in taxable income. If interest is greater than Rs. 40,000 in one year, TDS (Tax Deducted at Source) is also applicable. However, if your income falls below taxable limit, you can submit Form 15G/15H and avoid the TDS.
- Both investments are risk-free and non-market-linked as the amount of interest doesn’t change.
FD vs RD: Which one will offer better returns?
If you get down to calculating returns, you will find a fixed deposit could probably give you more earnings than a recurring deposit. The main reason for this is that your periodic interest upon an FD is greater because the interest is applied on a lump sum amount each year. Whereas in case of an RD, you begin with a small amount, and gradually increase it. You can check the exact rate of returns for both using a calculator that you will easily find online, or check with the bank.
FD vs RD: Which one should you go for?
This decision largely depends on your financial status. If you have received a lump sum amount in the form of a salary bonus, for example, you can invest it in a fixed deposit and spend it for huge expenses like a new car. The reason FDs are popular with senior citizens is that they can invest their retirement benefits in an FD and choose for a long-term monthly or quarterly payout, ensuring a cash flow for themselves in retirement.
On the other hand, if you do not have a large amount to invest but want to accumulate regular savings, an RD is perfect for you. You can keep aside a fixed sum every month, so that it doesn’t weigh upon your expenses. You can time an RD to meet financial and life goals such as a holiday, or a child’s higher education.
Both FDs and RDs are important financial instruments, and you should use them especially when you are new to earning and are not certain about other investments. They provide a sense of financial security that no other instrument does. To be completely assured, invest your hard-earned savings only with a credible bank. RBL Bank, which was established in 1943, has been offering lucrative savings solutions to customers with its range of products. It has gained the trust of 8.4 million customers across the country.
To know more about, RBL Bank FD & RD products, please click here.