Difference Between Fixed Deposit and Recurring Deposit

Fixed Deposits and Recurring Deposits are the two investment tools offering different benefits to the investors. In recurring deposits, the investors need to deposit a fixed amount of money for a fixed period while in FD, a single amount is invested for a particular period. Both options have varied features and benefits, offering financial stability to the investors.

Here, we will discuss the fixed deposit vs recurring deposit.

What is a Fixed Deposit Account?

A fixed deposit account (FD) is a term deposit or time deposit scheme offered by the banks to the customer. It is suitable for people who wish to save a large amount for a particular period safely. In an FD account, customers deposit a sum of money for a particular tenure.

For example, if you open an FD account, you will deposit Rs. 1 lakh while opening the account for 1 year. The FD amount and tenure can be decided by the customer. Banks provide you with a fixed interest rate at the end of your tenure.

Also, the rate of interest remains the same through the tenure. You also get options to get regular interest payments through the tenure or get the complete amount at the maturity. Banks allow the customers to close the FD prematurely but will charge a penalty.

What is a Recurring Deposit?

Recurring Deposit (RD) is a service offered by banks where customers can deposit a fixed amount of money every month. It is best suited for the regular income group people. RD offers you interest on your deposited money at the end of tenure. It is a type of term deposit provided by the banks.

In RD, customers need to deposit fixed money every month for a particular period. For example, if you open an RD account, you have to submit Rs. 5000 per month for 1 year duration. The amount of money and tenure can be decided by the customer as per their budget.

This option helps you make a habit of regular savings. You can open an Rd account for different periods such as short, long, or medium tenures. The interest provided on RD will depend on the amount and the tenure. There are various RD types available in banks for children, senior citizens, and NRIs, each offering unique benefits. The ROAD opening process can be different from bank to bank. You can even close your RD account prematurely, but there will be a penalty charged by the bank.

FD vs RD – A Comparison

Here are the key differences between FD and RD:

	Fixed Deposit	Recurring Deposit
Purpose	FDs are investment tools where you can invest a surplus amount and earn a higher interest rate than the savings account.	RDs are also the financial instrument where you need to deposit an amount regularly and then earn interest. It helps you to create a habit of saving every month.
Duration	The duration of FD is from 7 days to 10 years	The duration is from 6 months to 10 years.
Renewal	The FD account renews automatically	Rd has no option for auto-renewal.
Premature withdrawal	The bank will charge a penalty for premature withdrawal	You get a 1% lower interest rate than the base rate, if you withdraw the amount prematurely.

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Which option Gives You more earnings: FD or RD?

The amount you get in FD and RD has a slight difference if the rate of interest is the same. Here we will understand this with an example.

Suppose, you invested Rs. 12000 in FD for 1 year tenure and invested in RD for Rs. 1000 per month for 1 year. If the rate of interest is 7.2% compounded monthly, The amount you will get after 1 year from FD will be 12,893 and from RD you will earn Rs. 12,476. You will earn Rs. 417 more in the FD scheme. So, if you invest for more years, say 5 years, you will get a better amount in FD than RD. The difference will be around Rs. Rs. 2085. So, FD gives you more earnings than RD.

Fixed Deposit vs Recurring Deposit: Which is Better?

Both schemes are highly beneficial and suitable for people with different needs. If we compare both the schemes, FD is proved to be more beneficial due the various reasons such as:

You get the lower minimum tenure for investment. FD allows you to invest even for 7 days. Whereas the minimum investment tenure for RD is 6 months.
You can opt for Tax saving FD where you get up to Rs. 1.5 lakhs tax benefits. On the other hand, RD has no tax benefit.
FDs also offer the option for monthly or quarterly payout while most banks don’t offer such option in RD.

What should You choose: RD or FD?

Choosing RD or FD purely depends on the type of investment you are looking for. If you have a handsome amount in your hand and you want to invest it, you must choose FD. On the other hand, if you are looking for a scheme where you can save some amount from your monthly income and earn good interest on it, you must choose the RD scheme.

Conclusion

FD and RD are the two important services provided by the bank that help the customer to grow their money. The duration of the deposits, interest rates and amount varies from bank to bank. There are various types of RDs and FDs where you can invest and get high interest rates. Before opening any RD or FD account, the customer must know the details of FD vs RD, to choose the best-suited one.

Difference Between FD and RD – FAQs

Which one is better: Recurring deposit vs Fixed deposit?

Ans. Both Rd and FD are good options for investment. You must check the features of both options and choose the one that suits your investment goals.

What is the minimum tenure of an FD account?

Ans. The minimum tenure depends on the type of FD account. However, the standard tenure is 7 days to 10 years.

Can I close the FD account before maturity?

Ans. No, you are not allowed to close FD accounts before maturity. If you have any emergency, you can withdraw the partial amount or the full amount with a penalty.