Bank FD or RD: Which investment is better for you?
New Delhi: Fixed deposits (FD) and recurring deposits (RD) are conventionally preferred investment options in India for those who opt for low-risk investment, the risk-averse people. Almost all the banks and non-banking financial services companies offer the facility of fixed deposits (FD) and recurring deposits (RD) with various features, tenures, interest rates and investment limits. According to experts, if an individual is not willing to take the risk on the money, then fixed deposits (FD) and recurring deposits (RD) can fulfil the purpose of both savings and multiplication of wealth at the same time.
Fixed deposits (FD) and recurring deposits (RD) are still been considered by more number of people as relatively compared to the other investment options such as mutual fund SIP, public provident fund (PPF) and national savings certificates (NSC) and others. Based on the prescribed features of fixed deposits (FD) and recurring deposits (RD), the choices among these two investment options varies upon requirements, availability of funds. Fixed deposits and recurring deposits can be differentiated on the basis of several factors such as interest rate, investment tenure and investment limit.
Interest rate on fixed deposits (FD) and recurring deposits (RD)
The interest rate offered on recurring deposits is generally lower than that offered on fixed deposits. In most fixed deposits and recurring deposits, the interest is compounded on a monthly basis while some on fixed deposits, the interest is compounded on a quarterly basis.
Considering an amount of Rs 60,000 to be invested in fixed deposit and the same amount in equal intervals of Rs 5,000 per month in recurring deposit at the interest rate of 7 per cent per annum for a period of one year. The amount at maturity among both the investments will be higher in fixed deposits (FD) because, in case of fixed deposits, the interest will start compounding on a principal amount of Rs 60,000 and so on while in case of recurring the deposit, the interest will start compounding from Rs 5,000 and thereafter.
FD vs RD: Investment tenure
An individual can start a fixed deposit for a minimum of 7 days and for a maximum period of 10 years while the minimum tenure of recurring deposits is one year with most of the banks which can go up to 10 years.
FD vs RD: Investment limit
Individuals can deposit a minimum sum of Rs 100 in recurring deposits while a minim of Rs 1,000 can be invested in fixed deposits. Most banks don’t have an upper limit on investment in fixed deposits and recurring deposits.
Fixed deposits (FD) vs recurring deposits (RD): Which investment should you choose?
Conclusively, fixed deposits (FD) can be better for those individuals who are having a lump sum amount readily available to invest while people with regular income stream can opt for recurring deposits (RD).
The interest earned on both fixed deposits and recurring deposits is taxable and most banks also deduct a TDS at the time of maturity, if interest income exceeds Rs 10,000. Loan facility against the fixed deposits and recurring deposits can be availed up to 90 per cent of the amount. Banks levy a penalty if an individual wants a premature withdrawal before the maturity in both fixed deposits (FD) and recurring deposits (RD).