Fixed Deposit Vs Recurring Deposit
Whenever we think for making an investment of our idle savings kept in our bank account, we try to find out the best alternatives that are available for investments. For a risk-averse person, deposit with bank could be a preferred option because of involvement of very less risk with decent returns.
In such a case, there are two good fixed income avenues available with bank which are Bank Fixed Deposit (FD) and Bank Recurring Deposit (RD).
Bank FD is an account in which the investor needs to make a lump sum investment for a fixed tenure and on this invested amount, banks offer you to get a fixed interest periodically till the end of the term or you may directly get whole interest along with the principal at the time of maturity.
Bank RD is an account in which the investor needs to deposit the pre-specified amount at periodic intervals (usually in monthly instalments) for a long term.
There are many differences between FD and RD as listed in the following table which would help you choosing between the two:
Difference between Fixed Deposit and Recurring Deposit
| Basis of Difference | Bank Fixed Deposit (FD) | Bank Recurring Deposit (RD) | |
|---|---|---|---|
| Objective | To earn better returns on idle money than savings account | Vs | To induce a habit of regular saving |
| Meaning | An account in which the investor needs to make a lump sum investment for a fixed tenure | Vs | An account in which the investor needs to deposit the pre-specified amount at periodical intervals for a long term |
| Investible amount | Lumpsum | Vs | In instalments- usually monthly instalments |
| Interest Rates | Varies from bank to bank- dependent upon tenure | Vs | Varies from bank to bank- dependent upon tenure |
| Interest Rates Compounding | Quarterly | Vs | Quarterly |
| Interest earning | More than RD- As lumpsum amount is invested | Vs | Less than FD- As amount is invested in small instalments periodically |
| Interest earned is taxable | Yes, as per investor's income tax slab | Vs | Yes, as per investor's income tax slab |
| Liquidity | Yes | Vs | Yes |
| Tenure | 7 days to 10 years | Vs | 6 months to 10 years |
| Income Tax Rebate u/s 80C | Yes upto Rs 1,50,000/- p.a., but on FD with a lock in period of 5 or more years | Vs | No |
| Maturity | Taxable | Vs | Taxable |
| Premature Withdrawals | Entire amount, anytime but after charging a certain penalty. Withdrawals are permitted for a minimum of 5 years under tax-saving fixed deposits. | Vs | Entire amount, anytime but after charging a certain penalty , banks generally charge 1% as penalty. Partial withdrawals are not allowed |
| Loans | Loan facility available upto 90% of the amount in the FD and the interest rate to such loan is around 0.5% to 2% higher than the fixed deposit rate | Vs | Loan facility available upto 90% of the deposit value in the RD where the RD needs to be pledged as collateral and the interest rate to such loan is around 0.5% to 2% higher than the fixed deposit rate |
| Tax Deduction at Source | Yes, at the rate of 10% on interest earned, if it exceeds Rs. 10,000 in one financial year. To avoid TDS, investor can submit Form 15G (for age below 60)/ Form 15H (for age above 60). | Vs | Yes, at the rate of 10% on interest earned, if it exceeds Rs. 10,000 in one financial year. To avoid TDS, investor can submit Form 15G (for age below 60)/ Form 15H (for age above 60). |
| Periodic income | Yes, interest can be transferred periodically to savings account | Vs | No |