Difference Between FD and RD

Fixed Deposits and Recurring Deposits are two of the most famous investment options in India. The major benefit of investing in a fixed deposit program or recurring deposit plan is that their returns are ensured and are risk-free. However, a lot of investors are not sure if they need to invest in the RD plan or the FD scheme. Therefore, understanding the difference between FD and RD is necessary. 

All of the big banks and financial institutions give both RD and FD as fixed income solutions. Both of the schemes would allow you to invest a particular amount and receive a fixed interest rate on that amount. Investors would also get both the capital and the interest at the conclusion of the term.

Discussed below are the FD and RD differences, features and benefits of fixed deposits and recurring deposits.

Understanding Fixed Deposits (FD)

A Fixed Deposit, also known as term deposit is a financial investment product offered by banks and other financial institutions. It is a type of savings account which allows investors to deposit a lump sum amount for a fixed period of time at a fixed interest rate.

Here are the key features of fixed deposit:

  • Maturity Period: FDs have a fixed maturity period, which can range from a few months to several years.
  • Interest Rates: The interest rates of fixed deposits are fixed and are generally higher as compared to regular savings accounts.
  • Interest Payouts: One can choose to receive their interest payouts periodically (monthly, quarterly, annually) or at maturity.
  • Interest earned on FDs is usually taxable.
  • FDs can be renewed for another term, and some banks offer an option to automatically renew if not instructed otherwise.

Also Read: Types of Fixed Deposit

Benefits of Fixed Deposit (FD)

Mentioned below are the benefits of investing in a fixed deposit scheme:

  • FDs encourage investors to put aside a big sum of money for a set period of time.
  • Section 80C will allow for tax exemption on investments in tax-saving FDs.
  • FDs are a safe investment with a guaranteed return in the form of interest.
  • The tenure of FDs might range from seven days to ten years. Depending on their objectives, investors can choose any tenure.
  • The interest rates on FDs are higher than those on savings accounts. A fixed deposit calculator can be used to calculate the interest earned on an FD.
  • FDs are a type of liquid investment. Despite the fact that they have a set term, investors can withdraw their funds at any moment with a penalty.

Understanding Recurring Deposit

A recurring deposit (RD) is a type of savings account offered by banks and financial institutions that allows individuals to deposit a fixed amount of money at regular intervals, generally monthly. RDs are a popular way to save money and earn interest over a predefined period. 

Here are some of its features:

  • Regular Deposits: With an RD, you can deposit a fixed amount of money at regular intervals (usually monthly) for a predetermined period.
  • Fixed Tenure: RDs have a fixed tenure, which can range from a few months to several years. 
  • Interest Rate: RDs offer interest on the deposited amount, and the interest rate is generally lower than that of fixed deposits (FDs).
  • Flexible Tenure: Some RDs may allow you to choose the tenure based on your financial goals.
  • Auto-Renewal: Many banks offer an auto-renewal option, where you can reinvest the matured RD amount into a new RD.

Also Read: Types of RDs

Benefits of Recurring Deposit (RD)

Mentioned below are the benefits of investing in a recurring deposit scheme:

  • The duration of RD investments spans from six months to ten years. Investors can determine the RD's tenure based on their investment objectives.
  • Small savings are encouraged by RDs. They also instill financial discipline by investing a set amount on a regular basis.
  • Section 80C exempts investments in Post Office RDs from taxation.
  • Investors could take out a loan against their RD investments, making them more liquid.
  • Investing in RDs is risk-free and provides a steady stream of income in the form of interest.
  • The interest rate on an RD is higher than the interest rate on a bank savings account. A recurring deposit calculator can be used to compute the interest earned on RDs.

FD vs RD - How are they different?

Here is a table to show the difference between FD and RD based on certain criteria:

Fixed Deposit (FD)  vs Recurring Deposit (RD)

Conditions

Fixed Deposit

Recurring Deposit

1) Tenure of the Deposit:

Seven days - 10 years

Six months - 10 years

2) Minimum Amount of Deposit for the Schemes:

Rs. 100

Rs. 10

3) Deposit Frequency of the Schemes:

Single Deposit

Monthly deposit

4) FD vs. RD Interest Rates:

3% to 7%

3.50% to 8.50%

5) Payout of the Schemes:

Monthly, quarterly, or yearly withdrawals are possible with FDs. As a result, they provide a reliable source of income.

Returns from RD are only realized when the scheme reaches maturity. At the end of the investment period - the investors are entitled to a lump-sum payment.

6) Withdrawals of the Scheme:

This item is not available. Depositors, on the other hand, have the option of discounting their investment and withdrawing the funds. However, there is less attention to such cases.

This item is not available. Depositors, on the other hand, have the option of discounting their investment and withdrawing the funds. However, there is less attention to such cases.

7) Auto-Renewal Facility of the Scheme:

The facility is available to FDs.

It is not available to RD schemes.

8) Default:

Investors cannot default because the entire payment is made at the start of the term.

The bank or institution has the right to cancel the account if the depositors fail to make RD payments for six months in a row.

9) Taxes on the Schemes:

Interest income above INR 40,000 is taxed at 10%, and senior citizen depositors are taxed at INR 50,000. If your PAN isn't submitted, you'll get a 20% discount.

Interest income above INR 40,000 is taxed at 10%, and senior citizen depositors are taxed at INR 50,000. If your PAN isn't submitted, you'll get a 20% discount.

10) Tax-Saving Facility:

Deposits with a 5-year lock-in duration are available.

Not available to this scheme.

11) Investment Type:

FDs are one-time investment choices that do not encourage depositors to make ongoing investments.

RDs are monthly investment choices that require participants to invest every month for the length of the scheme. As a result, depositors will develop an investment habit.

12) Insurance Over the Deposit:

FDs have insurance coverage.

RDs have insurance coverage.

Recurring Deposit Vs. Fixed Deposit - Which is Better?

A recurring deposit (RD) appears to be the appropriate fit for persons who do not have a lump sum to invest in an FD but can afford a modest percentage of the investment amount from their monthly income. Both the RD and the FD are suitable for risk-averse investors who are largely in the lowest tax bracket. Use an online recurring deposit calculator to determine the best option for the amount you have available to invest. 

Although no single investment product may fulfill all demands, many people prefer an RD since it is cheaper and also offers nearly the same returns as an FD.

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