F.D v/s R.D : Which Deposit is better?

F.D v/s R.D : Which Deposit is better?

Fixed returns and good interest rates are probably the two most common features which make Recurring Deposits and Fixed Deposits popular investment options for most Indians. These investment options are ideal for those who have a lower income and a lower risk appetite.

Both Recurring Deposits and Fixed Deposits give you guaranteed returns at the end of their tenure. Except that for Fixed Deposits, the interest is credited on a monthly, quarterly or annual basis. But for Recurring Deposits, the interest is paid along with the capital amount on maturity.

Now where to save money? Well, a lot of times investors get confused whether to invest in a Recurring Deposit (RD) or a Fixed Deposit (FD). Saving money is need of the hour, but this money is likewise the dead money you end up saving for a rainy day. In today’s’ time, you need to multiply your money by creating wealth. Investment options carry an enormous amount of risk and volatility. If you happen to be that risk taker, deposit schemes would best suit your need. Fixed deposits and recurring deposits are known to provide steady and a confirmed growth of your money, barring you from the fluctuating market.

Fixed Deposits and Recurring Deposits are the most attractive investment options with complete safety. Both these investments provide a fixed amount at the end of the tenure. One of the most effective differentiations between an FD and RD is the investment pattern.

Fixed Deposit

FD is a one-time investment that can be locked up for tenure as low as 7 days up to 10 years. There’s no limit on the maximum amount with which you can make an FD, but few banks do have a limitation on the minimum amount to be deposited. The interest on FD is compounded quarterly and credited to the investors’ savings account or sent to them via cheque. Some investors choose to reinvest the interest in the FD account which is commonly known as Cumulative Fixed Deposit or Compound Interest Fixed

Recurring Deposit

Recurring deposits are monthly investments that can be opened for a minimum of 6 months to a maximum of 10 years. The minimum limit for investing in an RD varies from bank to bank, mostly in multiples of Rs 100 to a maximum limit of Rs 15 lacs. If you wish to withdraw premature or partial investment, it is possible but comes with 1 percent or 2 percent penalty charges, varying from bank to bank. The interest rate on RDs depend on the amount of investment to be paid on monthly basis and also the maturity period, which varies from usually 7.5 percent to 8.5 percent.

Which option should you pick?

If you foresee no major use of an amount in distant future which would sit idle in your account, you could prefer using that amount to invest in an FD for a desirable time slot. The idea of investing money in an FD is that you get higher returns in comparison to your savings bank account. If you have enough savings and are struggling with monthly expenses without making any investments, in this case, you should invest in an RD. Recurring deposits put you in a habit of saving an X amount on monthly basis and disciplines you while spending it.

Making the choice between the two totally relies on your financial capacity and availability of money. Irrespective of whatever you select, it is important to go through all the terms and conditions specified by the bank.


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