Fixed and Recurring deposits are two of the most common savings schemes. Anyone with an active bank account can open these accounts with ease.
Let us learn about the differences between the two.
An FD (Fixed Deposit) is a term deposit where you can deposit a sum of money for a specific time period. You earn a cumulative interest on the money throughout the time, and get it as a lump sum in the end.
An RD (Recurring Deposit) also lets you earn an interest on the funds you deposit. But, in the case of RDs, you can make monthly contributions instead of having to put aside a huge sum of money at once.
Now that we know what an FD and RD are, let us see how they differ from each other -
| Criteria | Fixed Deposit | Recurring Deposit |
|---|---|---|
|
Mode of Deposit |
Lump sum |
Regular monthly contributions |
|
Investment Amount |
Generally, starts from Rs.1,000 |
Can range from Rs.10 |
|
Tenure |
Ranges from 7 days to 10 years |
Ranges from 6 months to 10 years |
|
Interest Amount |
Higher interest earned as compared to RDs |
Lower interest earned as compared to FDs |
|
Premature Withdrawals |
Allowed, but a penalty will be charged by the bank |
Allowed, but a penalty will be charged by the bank |
|
Renewals |
Can be renewed automatically |
Do not have the option to be automatically renewed |
|
Defaults |
Since payment is made in lumpsum, there is no scope for defaults |
If a customer defaults on one payment, banks can charge a penalty or even close the RD |
|
Loan Facilities |
Available for up to 90% of the amount |
Available for up to 90% of the amount |
When looking for the difference between fixed and recurring deposits, you will also find many similarities between the two. Both can be easily created if you have a bank account, and both can be broken anytime by paying some penalty.
Both are not tax-saving investment options and are comparatively safe as your money does not dapple in the market. You get the interest amount that is promised to you when you start the account. Be it a fixed deposit or recurring deposit, you can decide how long you want to save for.
While choosing which is the best option for you, you can focus on these differences between recurring deposit vs fixed deposit accounts -
In case you have excess funds to invest, you can choose an FD. If you want to start the habit of saving regularly and become disciplined, you can start an RD.
The major difference between fixed deposit and recurring deposit accounts is the way the funds are invested.
If the rate of interest earned is the biggest factor for you, you can opt for an FD. Since you make lump sum payments in FDs, the rate of interest is higher as compared to RDs. RDs calculate interest on a monthly, quarterly, or bi-yearly basis.
The duration you want to save the money will also affect whether you choose an FD or an RD. RDs can be opened for 6 months to 10 years, but medium-tenure RDs pay the highest interest rates.
On the other hand, FDs can also be opened for 7-14 days, and be kept for 10 years. The interest earned in a shorter duration will be lower, but you can opt for it if you have some extra money for a week or two.
RDs and FDs are great investment tools to keep some money aside for life goals. You can start an RD for your dream vacation or your wedding funds! Banks even have schemes that might give you additional benefits on RDs.
FDs, however, are a good way to keep some money away for an emergency or fulfilling a goal in the future. You can earn interest while the money is parked in your account, and you get high liquidity as well.
So, make a note of your needs and the amount of money you can invest to decide if you should start a recurring or a fixed deposit.
Considering which is better recurring deposit vs fixed deposit boils down to personal choice. While FDs have higher returns, RDs allow you to deposit money in smaller amounts throughout the tenure.
There is no limit on the number of fixed deposits one can have. You can have as many FDs as you want.
One of the disadvantages of a recurring deposit is that it earns lower interest rates as compared to an FD. RDs are also not tax-saving investments and are good for fulfilling small life goals.
No, recurring deposits are not risky as the bank does not dapple your money in the market. You get the interest rate that you were promised at the beginning of your tenure, given that you make the payments on time.
The major disadvantage of a fixed deposit is also the biggest difference between a fixed deposit and a recurring deposit. You have to invest money in a lump sum to open an FD. That means you have to keep a huge sum of money parked for a long period of time to get good returns.
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