Fixed and Recurring, Two of the most popular financial instruments among risk-averse investors are fixed deposits and recurring deposits. The main benefit of investing in one of these schemes is that the returns are fixed. Because both schemes are quite similar, many people become perplexed when deciding whether to invest in a Fixed Deposit or a Recurring Deposit.
Let us know everything about these investment options in this article, including FD vs RD, and which one you should choose.
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‘What exactly is a fixed deposit?’
To understand FD/RD, that is, the difference between FD and RD, you must first understand both of these investment instruments.
A fixed deposit is a type of investment that allows you to grow your money over time at a fixed interest rate. This scheme requires a one-time investment at the start of the tenure. The term of a fixed deposit can range from 7 days to 10 years. The principal amount is paid upon maturity; however, you can choose to receive the interest on your FD at regular intervals or at maturity.
You can park your savings in a fixed deposit and enjoy significant wealth growth over time. Fixed deposits are safe and offer guaranteed returns because interest rates remain constant over time.
What exactly is a recurring deposit?
Customers can invest a sum of their choice every month and save whenever it is convenient for them with recurring deposits. This is the main distinction between FD and RD.
Many banks provide recurring deposits with terms ranging from 6 months to 10 years. The interest rates remain constant throughout the term. And, like a fixed deposit, the principal is paid on maturity, and you can choose whether to receive the interest at regular intervals or at maturity.
Key Differences Between FD and RD
Now that you understand what a Fixed Deposit and a Recurring Deposit are, it is critical that you understand the difference between FD and RD. Knowing the difference between FD and RD can help you make an informed decision before you begin investing.
3. The Amount of Interest
There is a distinction between the FD and RD interest amounts earned at the end of the investment term. It is significantly higher for FDs than for recurring deposits.
4. curiosity
The interest on a fixed deposit account is paid monthly, quarterly, or at the plan’s maturity. However, the interest on a recurring deposit account is only paid to the person at the end of the plan.
5. Inspiration
When you invest a surplus amount in a fixed deposit, you earn money as interest. In the case of a recurring deposit, you form a habit of saving money by investing a set amount of time at a fixed interest rate for a set period of time.
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FD and RD Shared Characteristics
You learned about the distinction between FD and RD in the previous section. Now we’ll look at some of the similarities between FD and RD.
1. Fixed Income Investments: Fixed-income investments include both fixed deposits and recurring deposits. They guarantee a return on maturity. Individuals are aware of the interest rate before investing their money. Furthermore, the interest rate does not change during the deposit period.
2. Guaranteed Returns: The returns on FD and RD can be calculated prior to invest. Based on the tenure, amount, and RD or FD interest rates, you can estimate the maturity amount. This can help you plan your financial objectives.
3. Premature Withdrawal: An FD or RD can be withdrawn before maturity. However, you will be required to pay the fine. With subsequent withdrawals, the penalty amount may increase.
4. Loan Facility: Another feature shared by fixed deposits and recurring deposits is the ability to borrow against both. The withdrawn funds can be used for any purpose. The loan amount, however, varies from bank to bank.
Which Should You Choose: FD or RD?
You may be wondering whether you should invest in a fixed deposit or a recurring deposit at this point. Here’s how you can make your choice.
Fixed deposits are ideal if you have a large sum of money that can be invested in one lump sum. Because FD interest rates are typically higher than RD interest rates, you can earn more. You can invest in a cumulative FD, which earns compound interest.
Recurring deposits, on the other hand, are ideal if you have a sizable surplus income, such as Rs. 1000, that you can invest each month. You can continue to deposit a small fixed sum each month. On maturity, the returns will be credited to your account.
