Fixed deposits and recurring deposit are among the most-preferred deposit schemes in India. Irrespective of age, most people in India still prefer putting their money in bank FDs and RDs. The secure nature and high rates of interest with flexible tenures are what adds to the popularity and attraction of these schemes. However, most times investors get confused between a fixed deposit and a recurring deposit for their investment objectives.
With RD one needs to deposit a fixed amount every month and can earn interest on a monthly basis. The interest along with the amount invested is paid at maturity. The interest on recurring deposit remains the same throughout the term once the investor has made the investment. The tenure for recurring deposits ranges from 1 year to 10 years, depending on the banks. The tenor for this FD can range between 12 and 60 months. FDs are best suited for investors who don’t need a regular interest payout.
While both the investments are for a fixed tenure, fixed deposit investors need to invest an amount only once, whereas recurring deposit investors get to invest a fixed amount at regular intervals.
If you are also planning to invest in either of these schemes, find out how these two products differ and when you should opt for them:
- 1. Both RD and FD are fixed income products offered by banks. The banks pay the investor a fixed interest on the invested amount at a specific frequency till maturity.
2. Once you have invested in either of these products, the interest rate remains the same throughout the term. The maturity amount which includes your invested capital and accumulated interest is paid at the end of the term.
3. Both RD and FD have the same taxability. The interest received from FD and RD is added to the investor’s total income and taxed at their personal income tax rate. For instance, if you fall in the 30 per cent tax slab, the interest from RD and FD will be taxed at the same rate.
4. However, in a fixed deposit, banks deduct TDS if the investor’s interest income in a year exceeds Rs 10,000. No TDS deduction in charged on recurring deposits. On this feature, RD scores over FD when they are compared.
5. When compared, FD fetches more return than RD. The reason being that in FD you invest a lump sum amount and hence, the entire money earns interest for one year. However, in a recurring deposit, the first installment earns interest for the 12-month period, the second for 11 months, third for 10 months and so on.
6. Experts suggest although FD earns higher than RD, it’s not possible for a single product to meet all your needs. For instance, people who do not have a lump sum to invest but can save a certain amount from their income every month, RD is a more viable product. But if you have a lump sum to invest, then FD is a better choice.
7. Though both these products suit all class of investors, they are mostly profitable for small investors who are mostly in lower tax slabs.