It’s quite common to expect an exceptional ending to a new novel you decided to read. Likewise, it’s common to expect high returns, hassle-free investment or investment safety when you are investing in financial assets or in saving & investment schemes. Trust us, we are all born on the same soil. All of us have high expectations from our investments.
However, these expectations are different for everybody. While some expect high returns, others expect guaranteed returns and investment safety. There are a lot of investment options and literature available to aid you when you wish to go for high returns, however, there’s only limited literature when investors are looking for investment safety.
“Which investment option would be the safest investment for me?” “Am I even going to get any returns on investment?”
If these are the questions that keep you up at night, Recurring Deposit and Fixed Deposit and the schemes that matter. Even though the concepts are pretty much clear to most of us, the question that always swims up to the surface is,
“What is the difference between Fixed Deposit and Recurring Deposit, FD V/s RD, to be precise.
Ergo, to wipe the dust off your windows, we’d be providing you with the clarity you’re quenching for.:
Key Takeaways
- The basic difference between Fixed Deposit and Recurring Deposit is the mode of investment. While Fixed Deposit demands a one-time, lump-sum deposit, Recurring Deposit invites regular deposits.
- The facilities of premature withdrawal guaranteed returns, loan facilities are some of the common features of RD and FD.
Common Features of FD & RD
Before we set the ship to sail to have FD v/s RD or Recurring Deposit v/s Fixed Deposit discourse, let’s first understand what exactly Fixed Deposit (FD) and Recurring Deposit (RD) are.
A fixed Deposit, as the name gives away, is an investment option that invites a deposit for a fixed period of time. Unlike most investment options, in a Fixed Deposit, the deposit is made only once at the start of the FD tenure. This period of deposit can range from 7 days and go up to 10-20 years, as decided by the investor. This deposit earns a return according to the interest rate fixed by the financial institutions.
As for Recurring Deposits, it’s an investment option wherein deposits are made regularly. These deposits are fixed and earn a rate of interest. The investment tenure usually ranges from 6 months to 10 months.
That said, let’s now get to the common features both FD and RD share:
1. Premature Withdrawal
Met with an emergency? No issues, both FD and RD offer the facility of premature withdrawal. For Recurring Deposit, the permissible withdrawal limit is 50% after one year. The withdrawal limit for FD depends on the chosen bank. Some banks may also charge a withdrawal penalty if the withdrawal amount reaches a set percentage.
2. Guaranteed Returns
This would be a breath of fresh air for risk-conservative investors. Both RD and FD offer guaranteed returns that are unaffected by market risks.
3. Loan Facility
FD and RD both provide loan facilities where you can mortgage the accounts to secure loans. The amount shall vary from bank to bank.
Did you Know?
If you are a senior citizen reading this, here’s a piece of good news. Some banks offer senior citizens a high rate of interest.
FD V/s RD Basic Differences Between Fixed and Recurring Deposits
Now that we have delved into the concepts, it’s time to discuss the basic difference between Fixed Deposit and Recurring Deposit, FD v/s RD.
FD v/s RD: Basic Differences
1. FD V/s RD: Frequency of Investment
While Fixed Deposit invites a one-time deposit at the commencement, Recurring Deposit invites a regular monthly deposit. This is the key difference between FD and RD.
2. FD v/s RD: Investment Tenure and Liberty
A fixed deposit account usually has a tenure that ranges between 7 days to 10 years. The investor has the liberty to decide the same. However, in a recurring deposit account, the choice is not provided to the investor and the investment tenure ranges between 6 months to 10 years, depending on the bank.
3. FD v/s RD: Amount of Interest
Even though both FD and RD earn a fixed rate of return, the return in a Fixed Deposit is much higher than receivable in Recurring Deposit.
4. FD V/s RD: Credit of Interest
In Fixed Deposit, the interest is received monthly, or quarterly. As for Recurring Deposits, the interest becomes payable at maturity.
5. FD V/s RD: Default
In a fixed deposit account, an investor cannot default on a deposit as it requires a one-time lump-sum deposit. As for Recurring Deposit, in case an investor fails to make the regular deposits for 6 consecutive months, the bank is well within its rights to terminate the RD account.
In a nutshell, here are the key differences between RD and FD, FD v/s: [3]
Basis of Difference | Fixed Deposit | Recurring Deposit |
FD V/s RD: Deposit Frequency | One-time, lump-sum deposit | Regular monthly deposits |
FD V/s RD: Tenure | 7 days – 10 years | 6 months – 10 months |
FD V/s RD: Minimum Deposit | INR 100 | INR 1000 |
FD V/s RD: Payment of Interest | Monthly/ quarterly | At maturity |
FD V/s RD: Default Clause | No risk of default | Risk of default is present |
Did You Know?
You can also set up an RD account with the post office. It earns a comparatively high rate of interest.
FD V/s RD: RD or FD: Which is Better?
Now that we have understood the difference between RD and FD, we might as well come to the concrete question, RD or FD: which is better? Sadly, the answer to this is indefinite. But don’t let your spirits crash, as you can still choose which is the right option for you by understanding your requirements.
Fixed Deposits invite a one-time payment that is usually sizeable. That said, if making a sizeable deposit doesn’t go well with your financial liberties, you may choose Recurring Deposit as it demands small but regular deposits. Recurring deposits are also ideal for salaried individuals who can make regular contributions, and for those who desire discipline when it comes to investment. It is also suitable for homemakers, and students who cannot set aside a sizeable sum for a one-time deposit.
Word to Remember
Premature Withdrawal:
Most investment schemes have a fixed tenure, i.e., the duration for which an investment scheme lasts. If an investor wishes to withdraw the fund before maturity, it is called premature withdrawal.
FD V/s RD: Which Deposit Gives You More Returns?
Now that we have touched upon the difference between RD and FD, or discussed FD V/s RD. let’s come to the question that we bet had your lips parched.
FD V/s RD: Which would give you more returns.
Be glad because this time there’s a definite answer you had been looking for.
When it comes to providing high returns, FD is the clear winner here. That’s because, in a Recurring Deposit, the account holder makes regular deposits and hence the interest is also received accordingly. As for Fixed Deposit, the amount is deposited once and is a lump sum. If you have been strong at mathematics in school, and college, you would know that such an amount earns a higher interest rate.
Conclusion
Both Fixed Deposit and Recurring Deposit are ideal investment options for individuals who dread taking investment risks. The good news is that both the options offer guaranteed returns, regardless of the market crashing down.
If you had been someone who scratched their head deciding which of the two to go for, with these differences between Recurring Deposit and Fixed Deposit listed here, we hope that you are now out of the woods and the confusion is now clear.
So, in the battle, FD V/s RD, who had been a winner for you?
FAQs
Yes, premature withdrawals are allowed from a fixed deposit account in case of emergencies. However, penalty fees may be applied by banks against premature withdrawals.
One key difference between fixed deposit and recurring deposit is the minimum and maximum deposit limit. For Fixed Deposit, the minimum deposit amount is INR 1000, as for RD, the minimum amount is INR 100.
The tenure for a fixed deposit account can range anywhere between 7 months to 10 years.
There is no fixed interest rate for Fixed Deposit and Recurring Deposit. The interest rate depends on the banks.
The main FD and RD difference, FD V/s RD, is the mode of investment. While Fixed Deposit involves a one-time lump sum deposit, recurring deposits are made regularly.