Fixed Deposit vs Recurring Deposit: Which is a Better Option?

You might be wondering, what is the difference between FD and Recurring deposit? And between FD or RD which is better? Is there any benefit of FD over RD and vice versa? Well, allow us to clear all your doubts with this blog. Keep reading!

What is a Fixed Deposit?

Fixed Deposits are fixed-term investment instruments that allow women investors to deposit a lump sum amount for a specific period at a fixed rate of interest. There are different types of FD Accounts like bank FD, tax-saving FD, corporate FD etc.

Example – Suppose you have some money saved up and you want to invest that for 1 year. If you decide to do an FD, you’ll be investing this amount at one go. 

Say your saved amount is Rs. 6000 and you put it in an FD for one year at an interest rate of 8%. In one year, the interest amount will be Rs. 480 and your maturity amount will be Rs. 6,480.

What are the features of Fixed Deposit?

• FDs offer a fixed rate of interest on investment. Depending on the offering institute and time period, different FDs will have different interest rates being offered.
• Investors can choose their investment tenure according to their financial goals, tenure ranges from days to years.
• FDs are offered by Banks (Bank FD) as well as by Corporates and NBFCs (Corporate FD). 
• Certain FDs offer special interest rates for women and senior citizens.
• FDs require a lump sum investment. The minimum investment amount is as low as Rs. 1000.

What is a Recurring Deposit?

A Recurring Deposit is a type of term deposit that allows investors to invest a certain amount of money per month and earn a fixed return on that investment. At the time of maturity, the investor receives the principal sum. The investor has the option to choose whether to receive the interest earned at maturity or at periodic intervals for example, monthly, quarterly, half yearly etc.

Example – Suppose you invest Rs. 500 monthly in a RD for one year with an interest rate of 6%. In one year, you will have accumulated Rs. 6,000 and your interest amount will be Rs. 199. Amount received at maturity will be Rs. 6,199.

What are the features of Recurring Deposit?

• RDs offer a fixed rate of interest on deposits. The interest will vary depending on the institute and the time period. Generally, interest earned on RD is lower than that earned on FD. 
• Investment tenure ranges from months to years.
• RDs are offered by banks, post offices and NBFCs. 
• RDs require monthly installments, not lump sum. Minimum investment amount starts from Rs. 500.

Fixed Deposit vs Recurring Deposit 

PARAMETERS	FIXED DEPOSIT	RECURRING DEPOSIT
Purpose	Invest your lump sum amount and earn interest higher than that offered on savings a/c and RD.	Invest in regular installments and earn interest higher than that offered on savings a/c but lower than on RD.
Type of Investment	Lump Sum	Fixed regular deposits
Issuer	Banks, corporates and NBFCs	Banks, Post Office, NBFCs
Eligibility	Anyone can open a FD	Anyone can open a RD
Duration	Tenure of FD ranges from 7 days to 10 years, can be chosen by investor	Tenure of RD ranges from 6 months to 10 years, can be chosen by investor
Interest	Interest is calculated on Lump Sum, gives higher return compared to RD	Interest is calculated monthly
Taxation	Interest Income is taxed at the investor’s income slab. Tax benefits on FD are offered for tax saving FDs only.	Interest Income is taxed at the investor’s income slab.

FD vs RD which is better

Both FD and RD are popular savings options for women. They are low-risk instruments that deliver fixed returns to investors. 

However, making a decision between FD and RD depends on an individual’s financial goals, return requirements, and investment horizon. One thing to be noted is that typically, both FD and RD do not generate inflation-beating returns over the long term. Hence, when you invest in these options it is essential for you to diversify your portfolio. Ensure that you also invest in other asset classes such as equity, gold, etc. 

Traditionally, FDs and RDs have been the most preferred investment choice for women, but now it is time to make smarter choices with your money! Just as you invest in an FD via a lump sum, you can also invest in mutual funds via a lump sum. Similarly, like with RDs, you can invest in mutual funds monthly via SIPs and aim for better returns over the long term.

Want to diversify your portfolio? Check out LXME’s expert curated equity, gold, and many more goal-based portfolios and start investing! You can also open fixed deposit account (Corporate FD)  with LXME.

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