Fixed Deposit vs. Recurring Deposit: Which is the Better Option for You?
For years, two popular investment vehicles have offered safety and predictability to Indians. Both Fixed Deposits (FD) and Recurring Deposits (RD) have been the “park it and leave it” option for many Indians, who wanted to gain returns on their surplus income, without taking on major risks.
These FD and RD deposits provide a fixed rate of return, with high interest rates and the safety of the money being invested. Depending on your investment goals and income capacity, you might find one of them more appealing than the other. However, when you use an FD calculator, you will see that traditionally fixed deposits tend to offer higher returns than recurring deposits with the same interest rates and investment period.
Let’s understand the features of both types of deposits so that you can make a sound decision.
Investment Amount
If you have a lump sum in savings that you want to invest in one go, a fixed deposit would be a better option. But, if you don’t have such a lump sum amount and would instead invest a small fixed amount per month, recurring deposits would be more suitable for you.
Interest Rates
Usually, FD interest rates are slightly higher when compared to RDs. The interest rate for FD varies between 4% and 7.25%, depending upon the tenure of the investment. The tenure can be as low as 7 days and as high as 10 years. On the other hand, recurring deposit tenures vary between 6 months and 10 years. So, FD definitely provides more flexibility.
Also, interest rates for fixed deposit get credited on quarterly, monthly or on the basis of maturity, while RD interest is paid only on maturity along with the capital invested.
Investment Motivation
Fixed deposits are usually good to keep aside a lump sum investment and lock it for a few years. Recurring deposits, on the other hand, can instil a savings habit, by ensuring that you put aside a certain amount of income every month towards a fund.
A point to keep in mind here is, in fixed deposits, a person cannot default on payments, as the investment is done right at the beginning. But, in recurring deposits, a bank can close the RD account when a person fails to deposit the fixed amount for a few consecutive months. Moreover, there is no penalty for senior citizens on early closure of fixed deposits, which is not applicable in case of recurring deposits.
In short, a recurring deposit is useful only if one doesn’t have a lump sum amount to invest at one go, or if one doesn’t want to lock away a huge amount of money for the long term. In that case, RD is a viable option to save regularly for medium-term needs. RD is thus good on account of flexibility. But, in real-time, one makes more returns through FDs.
Tip: Before investing, be sure to use an FD calculator to understand how much your investment would be worth after a certain period, based on prevailing interest rates.
For years, two popular investment vehicles have offered safety and predictability to Indians. Both Fixed Deposits (FD) and Recurring Deposits (RD) have been the “park it and leave it” option for many Indians, who wanted to gain returns on their surplus income, without taking on major risks.
These FD and RD deposits provide a fixed rate of return, with high interest rates and the safety of the money being invested. Depending on your investment goals and income capacity, you might find one of them more appealing than the other. However, when you use an FD calculator, you will see that traditionally fixed deposits tend to offer higher returns than recurring deposits with the same interest rates and investment period.
Let’s understand the features of both types of deposits so that you can make a sound decision.
