What is the Difference Between Recurring Deposit and Fixed Deposit?
Fixed deposits and recurring deposits are the two most popular fixed income instruments in India as they enable investors to multiply their savings without taking any risks. The interest rates of both these instruments remain constant over the tenor and you receive the interest along with the deposit amount at maturity.
These are the few similarities shared by RDs and FDs. Now, let’s check the differences between them:
RD v/s FD – The better investment option
A fixed deposit plan allows you to lock-in a lump sum amount for a tenor that you can select as per your financial plans and requirements.
You can invest in a cumulative FD that provides the interest accrued returns directly upon the completion of the FD tenor. Or else, you can choose to receive the interest through periodic payouts by investing in a non-cumulative FD.
On the other hand, RDs are suitable for you if you don’t want to invest all your savings at once. It allows you to deposit a fixed amount each month. Therefore, it enables you to grow your savings systematically.
As each of these instruments has its own set of features and benefits, your investment needs and plans will determine the better investment option for you.
RD v/s FD – Early withdrawal
Recurring deposits do not allow you to withdraw the entire deposit at once. You can withdraw 50% of your deposits only if you are depositing in an RD account for at least a year.
The bank might charge interest on the withdrawn amount and you will need to redeposit the withdrawn amount either through installments or at once before the maturity date.
Fixed deposits allow you to withdraw the deposited money in case of a financial emergency. The bank might charge a penalty that is usually a set percentage of the interest gains.
Some finance companies like Bajaj Finance even offer a loan against FD. It means that you don’t have to break your deposits as you will be getting up to 75% of the FD value as a loan without submitting any collateral. Therefore, we can say that FDs are better when it comes to premature withdrawals.
RD v/s FD – Interest calculation
In RDs, only your first deposit will attract interest for the entire tenor as the subsequent deposits will be locked-in for a relatively shorter period. The deposited amount attracts interest over the complete tenor in fixed deposits. Therefore, the returns offered by an RD are less as compared to FD returns.
RD v/s FD – Rate of Interest
Banks are offering an interest rate up to 6.5% on RDs whereas the bank FD rates can be up to 6% depending on the selected tenor. However, corporate FDs offer higher returns than bank FDs.
For instance, Bajaj Finance FD interest rate is up to 6.85%. It is much higher than both bank FD and RD rates. You also get the option of choosing a tenor from 12 to 60 months as per your financial requirements. Senior citizens get an excess FD rate of 0.25% and non-seniors can invest in an FD online by using an online FD form to get a 0.10% extra FD interest rate.
This FD has received FAAA/stable ratings by CRISIL and MAAA/stable ratings by ICRA. These are the highest ratings offered by these credit rating agencies. It means that your investment is safe when you invest in its FD plans.
If you are in search of risk-free instruments that grow your deposits at a fixed rate then RDs and FDs are the most suitable options for you. The key differences between these instruments lie in the method of investment, interest calculation method, and withdrawal options. RDs are offering a higher interest rate than bank FDs currently but their interest calculation methods might nullify this difference. Instead, you can invest in a corporate FD like Bajaj Finance FD that is offering an interest rate of up to 6.85%. The other benefits of fixed deposit include a higher FD interest rate to senior citizens, an additional FD rate offered to non-seniors on investing in an FD online and stable ratings given by credit rating organizations.