In India, where people often seek secure ways to safeguard their earnings, the FD vs RD comparison is a common problem when choosing a risk-free investment option. Fixed Deposits (FDs) and Recurring Deposits (RDs) stand out as favoured investment choices, known for their secure and assured returns, particularly for objectives like funding education or building retirement funds.
While FDs and RDs share certain similarities, they also differ significantly in aspects like tenure, deposit options, and interest rates. This article aims to provide you with comprehensive insights into key differences between FD and RD, to help you make an informed decision when choosing between FD vs RD.
What is a Fixed Deposit?
A fixed deposit is a simple investment plan where you put a certain amount of money into a bank or financial institution for a set time (known as maturity), usually a few months to several years.
Benefits of Fixed Deposit Investments
For Indians, fixed deposits are seen as one of the safest ways to invest money. Although the FD returns are moderate, they are consistent, which makes FDs an attractive option. Different types of FDs include regular fixed deposits, which offer a fixed interest rate for a specific term; senior citizen FDs designed for older individuals with better interest rates; tax-saver FDs that provide tax benefits while locking your money for a set period.
Key features of FDs are:
- Interest payments on a monthly, quarterly, annual, or maturity basis.
- Stable returns unaffected by market changes.
- Principal withdrawal is usually only at maturity with a potential penalty for early withdrawal.
- Reinvestment option is generally available after maturity.
What is a Recurring Deposit?
A Recurring Deposit (RD) is a type of savings scheme where you regularly deposit a fixed amount of money into a bank or financial institution for a specified period.
Unlike FDs which require a lump-sum, RDs involve periodic contributions. You choose the deposit amount and time, usually 6 months to 10 years. RD interest rates, often lower than FDs, are set by the bank. Interest on RDs is generally calculated monthly or quarterly, compounding by adding to your principal each month.
When the RD period ends, you get back your initial money along with the interest you’ve earned. Recurring deposit accounts come in various types, including regular RDs which involve consistent deposits over a chosen period, while schemes for minors and senior citizens address specific needs. NRE/NRO RDs are tailored for non-resident Indians.
Key features of RDs are:
- Individuals can open multiple RD accounts.
- Flexible term options, catering to short, medium, or long durations
- Partial withdrawals are generally not permitted.
- Automatic deduction options are available for convenient monthly deposits.
FD vs RD: What are the Key Differences?
When it comes to saving and investing, both FDs and RDs are popular options, but they have distinct features that cater to different financial needs. Here’s a detailed comparison to help you understand the key differences between FDs and RDs:
|Tenure of the Deposit
|7 days – 10 years
|6 months – 10 years
|No possibility of default due to an upfront lump-sum payment.
|If RD payments are missed for six consecutive months, the account can be cancelled.
|FDs allow monthly, quarterly, or yearly withdrawals, providing a steady source of income.
|Returns from RD become available upon scheme maturity, resulting in a lump-sum payment at the investment period’s end.
|Tax benefits are accessible with a fixed deposit that has a lock-in period of 5 years.
|Not eligible for tax exemption.
|Does not encourage consistent savings due to the lump-sum nature.
|Encourages disciplined saving via monthly deposits.
|Interest is computed on the entire lump-sum amount.
|Interest is calculated on a growing monthly balance, fostering compounding over time.
|Lower risk due to steady interest rates and fixed tenure.
|Lower risk due to steady interest rates and incremental deposit structure.
|Suitable for lump-sum investors seeking higher returns.
|Ideal for those with regular monthly savings, aiming for gradual wealth growth.
|Fixed tenure and deposit amount, with reinvestment option.
|Flexible tenure and deposit selection; each monthly deposit remains fixed.
FD vs RD Calculator: Calculating Maturity and Interest Amount
FD and RD calculators are online tools offered by banks to help individuals estimate their potential earnings from Fixed Deposits (FD) and Recurring Deposits (RD) investments. These calculators use the RD and FD interest rates offered by the bank to calculate the expected returns on the investment.
Online FD Calculator: Conveniently Calculate Your Fixed Deposit Interest
For Fixed Deposits, the FD calculator considers the principal amount, tenure, and applicable interest rate to forecast the maturity amount. It’s especially useful for understanding returns before committing to an investment.
In the case of Recurring Deposits, the RD calculator factors in monthly investment amount, annual interest rate, and tenure to predict the total maturity amount. RDs involve regular contributions, and the calculator helps anticipate the cumulative effect of these consistent investments.
Benefits of FD and RD Calculators:
- Both calculators save time and effort, aiding financial planning.
- Precisely predicts maturity amounts for better investment choices.
- Helps compare different banks and schemes to maximise returns.
Final Word: Which Is Better – FD or RD?
The differences between FD vs RD highlight that while both promise assured returns, their structures cater to different investor preferences. FDs are better suited for individuals with a lump sum to invest, while RDs are designed for those who want to save and invest gradually.
Both FDs and RDs encourage the habit of saving money, and when deciding between the two, you should compare factors like your investment amount, liquidity needs, and long-term financial goals. This comparison between FD vs RD will help you make a well-informed choice that aligns with your goals and needs.