Savings and investment are the most essential part of efficient financial planning and yet, so challenging for most people. If you are able to save extra money to invest for the future, first, pat yourself on the back. It is your plan B, your backup that you will need when you are out of funds. However, looking at the economy during the Coronavirus pandemic, it is difficult to decide where to make your next investment. So, if the unpredictable nature of the economy these days keeps you on your toes, then you may consider Fixed Deposit or Recurring Deposit, the best and risk-free investment avenues for those looking for assured returns. In this article, we will take a look at the features and differences between RD and FD.
Difference between FD and RD: What is Fixed Deposit?
Fixed Deposit is one of the more traditional forms of investment and a smart choice to include it in your portfolio if you are into risk-free investment. It is a form of fixed income account in which you deposit a lump sum for a set period in return for a guaranteed growth. You can only make one initial deposit at the beginning of the tenure, which can range from 7 days to 10 years. Here, interest rates are fixed at the time of opening the account and continue to stay the same till maturity. So, the longer you leave your investment, the higher you return will be.
Difference between FD and RD: What is Recurring Deposit?
Recurring Deposit is another popular investment tool offered by banks and financial institutions, helping you to save money on a monthly basis. It offers flexibility to people in the choice of investment amount and tenure along with several other benefits. Here, you are required to deposit a certain amount every month for a fixed tenure, which can range from 6 months to 10 years. Also, the rate of interest you get stays the same across the tenure. At maturity, you get the invested amount, along with the accumulated interest.
RD vs FD: Major differences between the investment plans.
Recurring Deposit vs Fixed Deposit: Duration
- In RDs, tenure ranges from at least a year and can go up to 10 years. However, in FDs, tenure can be as short as 7 days and go up to 10 years.
Recurring Deposit vs Fixed Deposit: Nature of Investment
- In RDs, people are encouraged to save and invest a specific amount every month. In FDs, a lump sum is paid at the beginning as a one-time investment to earn interest for a specific duration.
Recurring Deposit vs Fixed Deposit: Returns
- In terms of returns, Fixed Deposit offers more as compared to Recurring Deposit as a lump sum is deposited at once in FD, earning more interest. RD, on the other hand, earns interest on a recurring basis as the investment is made every month.
Recurring Deposit vs Fixed Deposit: Taxation
- Both FD and RD are taxable. However, it is not necessary for you to pay TDS on RD but you will have to mention interest earned at the time of filing ITR.
FD vs RD: Which one should you opt for?
Which investment option is better for you depends upon your requirement and availability of funds. However, If you have enough funds to invest, then you can consider a Fixed Deposit as it generates higher returns as compared to a Recurring Deposit. If you’re a salaried employee or don’t have a lump sum to invest at once, you may opt for a Recurring Deposit as here you will have the option of saving and investing a specific amount every month.
In a nutshell
Both fixed deposit and recurring deposit are great for any short-term investment where you simply cannot risk losing any capital. They offer guaranteed return and a fixed interest rate to help you achieve financial goals. Should you want to open a Fixed Deposit or a Recurring Deposit account, you can visit Finserv MARKETS to avail best interest rates.