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Fixed Deposit or Recurring Deposit: Which Is Better? 

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September 13, 2022
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Fixed Deposit Or Recurring Deposit: Which Is Better?
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Fixed Deposits (FD) and Recurring deposits (RD) are the most popular investment products in India. These investment products offer a higher interest rate as compared to other low-risk financial instruments. Both these investment products can be used for short-term or long-term purposes. In this article, we will discuss the differences between FD and RD from different aspects. 

Before we start talking about why you should choose either option, let's first understand what they are exactly:

Fixed Deposit (FD)

A fixed deposit (FD) is a time deposit where you deposit a fixed amount for a fixed period of time. During this period, interest is earned on the deposited amount at regular intervals. The rate of interest payable depends on the tenure (the longer the tenure, the higher the interest rate). 

FDs are offered by banks and other financial institutions in India under various schemes. Interest rates are usually higher than RD interest rates but lower than those offered by mutual funds or stocks.

Fixed deposits are safe investments with low-risk profiles compared to other alternatives such as stocks or mutual funds. However, they usually carry lower returns than other investment options like bank accounts (which offer no growth potential) or capital appreciation instruments such as gold bullion (which could see large fluctuation in value over time). 

An FD has a fixed maturity date that cannot be extended beyond its original term duration. There are penalty charges that are levied on early withdrawals from an account where you have deposited money for specific periods of time. Hence only invest what you can afford not getting back before its maturity date arrives. 

Recurring Deposit (RD)- 

Recurring Deposit (RD) is a type of deposit that allows you to lock in your savings for a fixed tenure in a recurring fashion. It can be opened with any bank and has the following features:

  • Fixed tenure - RD offers a fixed period of time during which you cannot withdraw or redeem the amount deposited. This period is usually between six months and five years, but banks may offer longer tenures as well.
  • Fixed interest rate - You will earn an interest rate determined by the bank at which this RD was opened every month during its tenure. The interest earned depends on several factors such as whether it is an urban or rural area, how large your deposit amount is, etcetera. Interest rates change from time to time so make sure you check them before opening an RD account with any bank!
  • Easy way to save money - Because there's no risk involved (i.e., no chance that other depositors could withdraw their funds before yours), people tend to put more money into their Recurring Deposits than they would otherwise put into other savings accounts or investments like stocks or bonds because they know this money won't disappear overnight.

FD vs RD – A Comparison

ParticularsFixed Deposit (FD)Recurring Deposit (RD)
Deposit FrequencyOnly onceMonthly
Tenure7 days to 10 years6 months to 10 years
Minimum depositRs. 100Rs. 1,000
TDS10% TDS is applicable only if interest income exceeds Rs 40,000/FY; this amount is Rs 50,000 for senior citizens(20% TDS is deducted if  the PAN card is not submitted)
Suitable forLow-risk investors who want to make a one-time payment.Low-risk investors who can make recurring investments. 
Income Tax saving optionAvailable when there is a 5 year lock-in period. As per Section 80C of the Income Tax Act, 1961, investors can save up to Rs 1,50,000 on their taxes. Not available
Deposit InsuranceCoveredCovered

How do you decide between an FD and an RD?

The decision between FD and RD is personal. Both programs provide set interest for the duration of the deposit. Both plans are also secure and safe ways to invest.

For those looking to invest a big sum, a fixed deposit investment is appropriate. They are also a wonderful choice for investors searching for consistent cash flow. FDs provide dividends on a monthly or quarterly basis. 

For instance, retirees can invest in long-term FD with their retirement benefits. The scheme gives regular interest payments to cover monthly costs in addition to capital protection. While those who are employed can invest their year-end bonus and utilize the funds to make other purchases, such as a vehicle or bike or home renovations, etc.

A recurring deposit plan, on the other hand, does not call for a one-time investment. Small monthly investments might add up to a sizable sum at the conclusion of the investing period. Therefore, RDs are appropriate for investors who want to make tiny monthly savings.

A recurring deposit plan, for instance, can be used to match a child's school costs at the start of the academic year. One might also begin making tiny savings for their ideal overseas trip.

Therefore, one should take their financial situation into account while deciding between FD and RD. If a person has a lump sum of money accessible, FDs could be the best investing choice. RDs will be an excellent alternative for depositors who do not have a large sum of money but would want to invest little sums in a secure and safe plan.

Why should you use Hubble Money?

Hubble Money helps you set up a recurring savings system linked with specific purchases.You can also earn 10% interest with every monthly deposit you make. Download the app today to start saving for future purchases. 

How to create a savings plan on Hubble Money?

To create your plan, you must:

  1. Select the desired partner brand (for instance, Myntra)
  2. Select the applicable savings plan displayed on the home page (for instance, get 10% extra  on savings plan) by clicking the Get Started button.
  3. A new page will open.
  4. Select the Customize option to change your deposit amount along with tenure.
  5. Review the plan to verify the selected details.
  6. Click the Pay button and complete the payment via your desired mode (such as UPI).
  7. Your savings plan will be made! 

FAQs

What is the full form of RD?

RD stands for recurring deposit. A recurring deposit is a type of savings option wherein investors make regular deposits at set intervals for a set period of time. Investors can grow their wealth by earning interest.

What is the full form of FD?

FD stands for Fixed Deposit. A fixed deposit is a type of savings plan that lets you save a predetermined amount of money for a set time period. Investors earn interests during the tenure.

Can FDs help me save on taxes?

Yes, if you choose to keep your money locked in for a minimum of 5 years.

Should senior citizens invest in FDs?

Yes, as they can enjoy a higher interest rate on their savings.

Can you automate payments on your RD?

Yes, you can set up recurring payments that are automatic so that you never have to worry about your investment!

Komal Chawla

Writer-by-chance and overthinker-by-choice, raging a war against the Pineapple-on-pizza brigade

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