Fixed Deposit Vs Recurring Deposit, which is best in 2019

Fixed Deposits (FD) and Recurring Deposits (RD) are some of the most popular investment options these days. Their interest rates are generally higher than other saving schemes. On top of that, these are extremely low-risk investments with guaranteed returns.

These are fairly simple to understand. That makes them a very popular choice among the people. Both of them apply a fixed interest rate on the principal amount for a definite period. Nevertheless, there are quite a few numbers of differences between the two. So here in this FD vs RD article, we are going to address those differences and at the same time, see which one is the best for you:

Comparison Between FD and RD:

What is a Fixed Deposit?

A fixed deposit is a very safe investment. Any FD interest calculation is generally done quarterly, although there are other options. In a quarterly plan, the interest calculation happens every 3 months. After those 3 months, the outstanding maturity amount becomes the principal amount. And then the new interest calculation happens over this new principal.

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To calculate the interest on your specific investment, you can use an FD Calculator. There are a huge number of them available online. It is a lump sum investment policy. Which means you have to deposit all of the principal amounts at once, at the beginning.

What is a Recurring Deposit?

A Recurring Deposit is a low-risk investment policy, where you have to deposit a predetermined principal amount every month. Unlike an FD, where you deposit the generated interest to your account every month, in an RD you receive the accumulated deposit with interest.

Interest Rate

In any FD vs RD comparison, this is the most decisive point. The interest rates on both the FD and RD change from lender to lenders. Factors like the principal amount, tenure, your basic financial history, and a few more effects this interest rate. The interest rates for the private financial institutions and other financial organizations are generally higher than in government banks.      

The fd interest rates are usually higher than those of RDs. For any given principal amount, within a set tenure, an FD will always produce higher returns than an RD.         

This is because the interest on an FD is compounded quarterly or yearly or monthly. Meanwhile, in an RD the interest calculation happens for every installment. This means that is you invest Rs.10,000 for a year every month at 7.2%, the interest on the first installment will be calculated for 12 months. The interest in the second one, for 11 months. Than 10 months, and so on. 

Tenures

You can invest your money in an FD for anywhere between 7 days to 10 years for non-government entities. But for an RD this time is anywhere between 6 months to 10 years. 

Taxes

The interests earned on both an FD and RD are taxable. The government deducts a TDS (Tax Deducted at Source) from the interest earned on an FD. This can be avoided by filing a 15G  and 15H form, given that you are eligible for such an exemption.   

On the other hand, no TDS is deducted from the interest earned from an RD. 

Nevertheless, it will be taxed, and you have to file it on your IT return.

Which one is best for you?

If you have some money that you don’t have anything to spend on, then an FD is the best for you. Now, if you don’t have much money, but can save some every month then an RD is your best option. An RD will help you gain the habit of savings.

Again, to know more about the specifics of your particular investment, you can use an FD calculator or an RD calculator. Just remember that the numbers they provide are pre-tax amounts. So the actual amount will differ a little bit.

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