Difference Between Fixed Deposit and Recurring Deposit

Two of the most well-known investing choices in India are fixed deposits and recurring deposits. The main advantage of investing in a fixed deposit or recurring deposit plan is that the returns are guaranteed and risk-free. However, many investors are still determining whether they should invest in the RD or FD schemes. Thus, it is essential to understand the distinction between FD and RD.

All the major banks and financial organizations offer RD and FD as fixed-income alternatives. Both schemes enable investors to deposit a specific amount and receive a predetermined interest rate on that sum. At the end of the term, investors receive both capital and interest.

Let's look at the difference between Fixed Deposit and Recurring Deposit

Fixed Deposits

A Fixed Deposit or Term Deposit is a financial investment product provided by banks and other financial institutions. It's like putting money aside in a special bank account for a certain time, and you get back a guaranteed amount plus a little extra.

Here Are the Main Features of Fixed Deposits

Maturity Period: Fixed deposits have a predetermined duration, ranging from a few months to several years.

Interest Rates: Fixed deposit interest rates are fixed and typically higher compared to regular savings accounts.

Interest Payouts: Investors can opt to receive interest payouts at regular intervals or upon maturity.

Taxation: The interest earned on fixed deposits is typically taxable.

Renewal Options: Fixed deposits can be extended for another period, and certain banks may offer automatic renewal if no specific instructions are provided.

Advantages of Fixed deposits

FDs encourage people to save a lot of money for a certain time.

Investments in tax-saving FDs can help you avoid paying taxes under Section 80C.

FDs are a safe way to invest money because you're guaranteed to get back some extra money as interest.

You can choose how long you want to invest your money in an FD, whether it's just a week or as long as ten years, depending on what you want to achieve.

FDs pay more interest than regular savings accounts. You can use an FD calculator to figure out how much interest you'll earn.

FDs are a flexible investment option. Although they have a fixed duration, investors can withdraw their money at any time, but they may incur a penalty for doing so.

Recurring Deposits

A recurring deposit is a savings account provided by banks and financial institutions where individuals can regularly deposit a set amount of money, usually monthly. RDs are a well-liked method for saving and earning interest over a predetermined period.

Main Features of Recurring Deposits

Here are the main features of recurring deposits:

Regular Deposits: Through an RD, you can consistently put in a fixed sum of money, usually monthly, for a certain duration.

Fixed Time: RDs last for a certain period that's already decided, which can be a few months to many years.

Interest Rate: RDs provide you with additional money on your deposits, but typically, the amount you receive back is lower than with fixed deposits (FDs).

Flexible Duration: In some cases, RDs allow you to select the period that aligns with your financial objectives.

Auto-Renewal: Numerous banks offer a service where your RD gets automatically renewed, saving you the hassle of having to reinvest the matured amount into a new RD yourself.

Advantages of Recurring Deposit

RD investments can last anywhere from six months to ten years, with investors deciding the duration according to their investment goals.

RDs promote saving small amounts regularly and help in building financial discipline by consistently investing a fixed sum at regular intervals.

Investments made in Post Office RDs are exempt from taxation under Section 80C.

Investors have the option to avail of loans against their RD investments, enhancing their liquidity.

Investing in RDs carries no risk and ensures a consistent income through interest payments.

RDs offer a higher interest rate than typical bank savings accounts, and you can use a recurring deposit calculator to calculate the interest earned.

Difference Between Fixed Deposit and Recurring Deposit

Parameters	Recurring Deposit	Fixed Deposits
Definition	RD involves depositing a set sum of money into the RD account every month.	In an FD, investors deposit a lump sum of money for a predetermined period without making any additional payments.
Eligibility	Investors, whether they're individuals, minors, or non-individuals, need to be at least 10 years old.	Investors, whether they're individuals, minors, or non-individuals, need to be at least 10 years old.
Duration of the deposit	The duration can range from six months to a maximum of ten years.	From seven days to a maximum of ten years.
Minimum Deposit Amount	10 Rs.	100 Rs.
Frequency of deposit	RDs are investment options in which participants are required to make monthly investments throughout the scheme's duration. This encourages depositors to develop a habit of investing regularly.	FDs are investment options where individuals make a single deposit and are not encouraged to make additional investments over time.
Documentation Needed	Proofs of identity Proofs of address	Proofs of identity Proofs of address
Maturity	It varies based on the duration chosen by the investor. Typically, the shortest maturity period is six months for most banks.	It relies on the duration chosen by the investor. The minimum maturity period commences at 7 days.
Withdrawal	You can take out your money after the agreed-upon duration ends. However, withdrawing before the term is completed may result in penalty charges.	You can withdraw funds once the term is over, but doing so before the agreed-upon period may incur penalty charges.
Limit on Investment	The minimum investment typically ranges from Rs. 50 to Rs. 100, though it may differ depending on the bank.	The minimum investment typically begins at Rs. 1000, although this amount may differ depending on the bank.
Best Suited For	Investors who are cautious about risks and prefer to invest small sums regularly.	Investors who are cautious about risks and prefer to invest a large sum of money at once.
Automatic Renewal Option	The option is not offered for RD schemes.	The option is accessible for FDs.
Default	The bank reserves the authority to terminate the account if depositors miss RD payments for six consecutive months.	Investors must make payments because the entire amount is deposited at the beginning of the term.
Tax	Interest earnings exceeding INR 40,000 are subject to a 10% tax, while senior citizen depositors face taxation if their income surpasses INR 50,000. If you haven't submitted your PAN, you'll face a 20% deduction.	Interest earnings exceeding INR 40,000 are subject to a 10% tax, while senior citizen depositors face taxation if their income surpasses INR 50,000. If you haven't submitted your PAN, you'll face a 20% deduction.
Tax Saving	This scheme does not offer this feature.	Deposits with a mandatory lock-in period of five years are offered.
Insurance	RDs are insured.	FDs are insured.

Conclusion - Which One is Better- FDs or RDs

An RD is a good choice for those who can only invest a small amount upfront in an FD but can save a little money from their monthly income. RDs and FDs are good for careful investors in the lowest tax bracket. Use an online RD calculator to see which is better for your investment amount.

While no investment product can meet all needs, many individuals favour RDs because they are more affordable and provide nearly equivalent returns to FDs.

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