FD vs RD: Which is the Best Savings Option for You?

"Many people in India, like in many other parts of the world, appreciate the idea of investing their savings in a way that minimizes risk. This mindset is deeply ingrained in our financial philosophy, which is why Fixed Deposits (FDs) and Recurring Deposits (RDs) have emerged as the preferred investment choices for numerous risk-averse investors in our country. These investments allow us to not only save our money but also grow it over time.

In this blog, we'll explore everything you need to know about FD vs RD, including what they are, how they differ from each other, and which one might be the better option for you based on your financial goals and preferences.

What is a Fixed Deposit (FD)?

A fixed deposit is a popular investment option where an individual deposits a specific amount of money for a predetermined period, typically lasting from a week up to a decade. This investment option guarantees a fixed interest rate throughout the tenure, which means that the rate of return does not change, regardless of market fluctuations. The initial investment is made once, and at the end of the term, the investor receives the principal amount back. One can choose to receive the interest accrued either at regular intervals during the investment period or at the time of maturity. The safety of the investment is a significant advantage of fixed deposits, making it a popular option among conservative investors seeking secure returns on their investments.

What is a Recurring Deposit (RD)?

A recurring deposit (RD) is a type of term deposit offered by banks and financial institutions, where the depositor can deposit a fixed amount of money at regular intervals, usually monthly, for a predetermined period of time. The RD scheme is a popular investment option for individuals who want to save a fixed amount of money every month and earn a higher interest rate than a savings account.

The interest rate offered on an RD is usually higher than that of a savings account and is fixed at the time of opening the RD account. The maturity period for an RD can range from six months to ten years, depending on the terms and conditions set by the bank or financial institution.

Recurring deposits are a good option for people who have a fixed income and want to save money regularly to meet their financial goals, such as buying a car, funding a child's education, or building an emergency fund.

Major Differences between FD and RD

When discussing RD (Recurring Deposit) and FD (Fixed Deposit), it is important to note three key differences between the two before discussing any other distinguishing factors.

• RD involves investing a fixed amount periodically, while FD is a one-time investment.

• RD is suitable for those who wish to invest smaller amounts on a monthly or fixed schedule.

• FD involves a larger lump sum investment.

Fixed Deposit vs Recurring Deposit

Below is an overview of the point of differences between a fixed deposit and a savings account:

Differences	Fixed Deposit	Recurring Deposit
Frequency	A fixed deposit is a one-time investment.	A recurring deposit is an investment made every month or quarter.
Investment Limits	The minimum investment limit for fixed deposit is ₹100, while the maximum investment limit is ₹1.5 Lakh.	The minimum investment limit for recurring deposit is ₹1,000, while the maximum investment limit is ₹15 Lakh..
Tenure	Fixed deposit tenure ranges from 1 week to 10 years.	Recurring deposit tenure ranges from 6 months to 10 years.
Interest Rate	Fixed deposit interest rates range from 6.96% to 8.00% per annum, depending on the capital and tenure chosen.	The interest rate is usually lower than that of fixed deposits.
Interest Pay-out	Fixed deposit interest can be paid out monthly or quarterly.	Recurring deposit interest is usually paid out at the time of maturity.
Auto-renewal	Fixed deposits usually have an auto-renewal option, where the deposit is renewed automatically at maturity.	Recurring deposits do not have an auto-renewal option.
Suitable for	Fixed deposits are suitable for individuals who have a lump sum of money to invest, such as salaried individuals and pensioners.	Recurring deposits are suitable for individuals who want to invest a fixed amount of money every month, such as homemakers, students, and freelancers.
Income Tax saving option	Fixed deposits offer an income tax saving option with a lock-in period of 5 years.	Recurring deposits do not offer an income tax saving option.

Common Features of FD and RD

1. Fixed Rate of Return:

   Fixed deposit and recurring deposit are types of investments that provide a fixed rate of return and are considered to be low-risk investments. These investments ensure that the individual will receive a guaranteed return on their investment at the end of the deposit term. The interest rate on these investments is predetermined and remains constant throughout the tenure of the deposit. In other words, the investor is aware of the interest rate they will receive before they make the investment and can rely on this rate to remain unchanged until the end of the deposit period.

2. Guaranteed Return:

   It is possible to calculate the expected returns of fixed deposit (FD) and recurring deposit (RD) investments in advance. By considering the investment amount, tenure, and interest rates offered by the FD or RD scheme, investors can estimate the maturity amount they will receive at the end of the deposit period. This estimation can be done using specialized calculators such as FD calculator and RD calculator, which can be easily accessed online. By using these tools, investors can plan their investments and make informed decisions to ensure they are on track to reach their financial goals.

3. Early Withdrawal:

   Although it is possible to withdraw funds from a fixed deposit (FD) or recurring deposit (RD) before the maturity period ends, doing so may result in a penalty. This penalty is typically imposed to discourage early withdrawals and compensate the bank or financial institution for the inconvenience caused. The amount of the penalty varies based on the terms and conditions of the FD or RD scheme and may increase with subsequent withdrawals.

4. Access to Loan against Deposits:

   A key feature of both fixed deposit (FD) and recurring deposit (RD) investments is that investors can use them as collateral to avail loans. The loan amount available against these investments may vary from bank to bank and may depend on factors such as the type of investment, the amount invested, the tenure, and the prevailing interest rates. By using their FD or RD as collateral for a loan, investors can access quick and hassle-free financing at competitive interest rates.

FD vs RD: Which is better?

Are you still having trouble deciding between fixed deposits (FDs) and recurring deposits (RDs) for your investment needs? Let us help you make the right choice.

Fixed Deposits (FDs) can be an excellent investment option for those who have substantial funds to invest. With the potential for significant returns over the long term, choosing a cumulative FD can further enhance your earnings. Cumulative FDs work by adding the earned interest to the principal amount, resulting in a larger sum of money that earns interest over time. As a result, the returns on your investment are compounded, leading to even greater returns. This investment option is particularly suitable for those who are looking to invest for the long term and want to maximize their returns while keeping their investment safe. Overall, investing in a cumulative FD can be a wise choice for investors looking to make their money work harder for them.

On the other hand, if you don't have a substantial capital to invest, RDs can be a great option for you. With RDs, you get the freedom to invest as little as ₹1,000 per month, making them a more affordable investment option. At maturity, the total amount deposited over the tenure of the RD will be transferred to your bank account, providing a steady stream of returns.

In short, the decision between FDs and RDs depends on your financial capabilities and investment goals. With this information, you can choose the best investment option that fits your needs and helps you achieve your financial goals.