FD vs RD: Differences Between Fixed Deposits and Recurring Deposits

People usually either invest a lump sum amount at one go or set aside a part of their earnings regularly to save systematically. You can choose either of these depending on what suits your financial needs of varying time horizons and the amount of surplus money you have at a given point of time.

Fixed-income instruments should be your go-to choice if you are looking for secure returns providing above average capital protection. Term deposits are fixed income instruments that offer the means to achieve all of the above mentioned — low-risk investment avenue, fixed returns and choice over investment frequency Term deposits popularly take two forms – Fixed Deposits and Recurring Deposits.

In both these forms, the deposited amount earns a predetermined interest. Since these deposits are mostly made with regulated entities, the returns are near guaranteed. Further, these deposits of up to Rs. 5 lahks are insured by the Deposit Insurance and Credit Guarantee Institution (DICGI). both the capital and interest payments are therefore safeguarded. Furthermore, both instruments come with the facility of premature withdrawal, and one can avail of loans against using these instruments as collateral. Confused about which one to invest in? How do you decide which one is more suitable for you?Continue reading to learn more about the difference between FD and RD 

What is a Fixed Deposit

A fixed deposit (FD) is a type of term deposit offered by banks and select other financial institutions. With a fixed deposit, you agree to deposit a certain amount of money for a specific period of time, known as the term of the deposit. In return, the bank pays you a fixed rate of interest on your deposit for the duration of the term.

Fixed deposits are generally considered to be a safe and stable investment option, as they offer a guaranteed return on your money. They are typically used by people who have a large amount of money to save and who do not need access to that money for a specific period of time.

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

Here’s an example of how a fixed deposit works:

• Let’s say you have 10,000 INR that you want to save for a year.
• You decide to open a fixed deposit account with a bank, and agree to deposit 10,000 INR for a term of one year.
• The bank offers you an interest rate of 5.5% per year on your deposit.
• At the end of the one-year term, the bank will pay you 550 in interest on your deposit (5.5% of 10,000).
• You can either choose to withdraw your money and the interest earned, or you can choose to roll over the fixed deposit for another term and continue earning interest.

What is an Recurring Deposits

A recurring deposit (RD) is also a type of term deposit offered by banks and select other financial institutions. With a recurring deposit, you agree to make regular,relatively smaller deposits over the term of the deposit, rather than making a single lump sum deposit as in the case of an FD. The interest rate on a recurring deposit is typically lower than the interest rate on a fixed deposit (FD), because the bank only has the use of the deposited amount for the duration of that particular deposit.

Recurring deposits are a good option for individuals who want to save money on a regular basis, but who may not have a large amount of money to deposit all at once. They are also generally more flexible than fixed deposits, as you have the option to make additional deposits or withdraw your money ( you will usually have to pay a penalty to do so).

Here’s an example of how a recurring deposit works:

• Let’s say you want to save 5000 INR per month for a year.
• You decide to open a recurring deposit account with a bank, and agree to make monthly deposits of 5000 INR for a term of one year.
• The bank offers you an interest rate of 5.5% per year on your deposits.
• At the end of the one-year term, the bank will have received a total of 60000 INR in deposits from you.
• The bank will pay you interest on your deposits, calculated at the agreed-upon rate of 5.5% per year.
• You can either choose to withdraw your money and the interest earned, or you can choose to roll over the recurring deposit for another term and continue making regular deposits and earn interest.

Fixed Deposit vs Recurring Deposit

 Here are the differences between FD and RD:

Final Thoughts

As you have seen, RD and FD have both similarities and differences. While both give near risk-free returns and are not affected by market changes, the effective interest on FDs turns out to be higher than that on RDs, this is more obvious in the case of  a cumulative FD.an RD lets you create a substantial corpus from small monthly savings in contrast to an FD that demands for a one-time lump-sum. When choosing between RD vs FD, you must consider the surplus amount in hand, the interest rates offered and the financial goals you are aiming to achieve.

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