Talking about investments, Indians consider both fixed deposits and recurring deposits as potent investment options for years. If you are ready to invest your savings or surplus cash, you can think of investing in either of these two.

However, if you talk of choosing between the two to drive the best out of your money, it could be a daunting task.

In the context of the same, let’s provide you some basics and characteristics of a fixed deposit (FD) and recurring deposit account to clear your confusion.

What are Fixed Deposits?

A fixed deposit is an investment vehicle which is offered by banks or non-banking finance companies (NBFCs) to let investors avail the benefit of a higher interest rate. The FD interest rates are higher as compared to a traditional savings account. The ROI on FDs are also fixed as it’s not affected by market conditions as in mutual funds and more. You can avail a flexible tenor for your investment as well as per the terms of your service provider.

What are Recurring Deposits?

A recurring deposit or an RD is also duration or tenor based investment plan where you can make fixed or regular deposits and earn some interest, just like an FD. The interest payout depends on an investor’s tax slab. There are also no TDS, unlike FDs.

An FD Differs from an RD on these Aspects

 

  • Periodic vs. Lump Sum Investment

Fixed deposits are best for someone who has accumulated some savings and wanted to invest for a shorter tenor. On the other hand, a recurring deposit works out well for those who are ready to invest some amount every month.

  • The Duration

A tenor is nothing but the duration that investment takes to grow and mature. Traditional FDs have a tenor ranging from 7 days to 10 years, and RD’s tenor is 1 year to 10 years. FDs demand a one-time investment of money and an RD needs a continuous feeding of money.

  • Interest Rate

The rate of interest for a fixed deposit and a recurring deposit scheme varies with the invested figure and the plan selected. The concept is simple – the more you invest in a fixed deposit, the more it will grow and mature. However, no matter how many times a deposit is made in an FD, the maturity of your FD remains unchanged. Overall, FDs offer more interest than a recurring deposit.

  • The Returns

The returns refer to the interest that investment will reap over a stipulated tenor. For fixed deposits, the interest-based ROI shall vary between 7.85% and 8.10%. For recurring deposits, the return on investment should range between 5.25% and 7.90%.

  • The Maximum Investment Amount

Maximum investments are limits that banks, non-banking finance companies (NBFCs) and other financial institutions put on deposits. You can utilize the usual limit of an FD till Rs.1.5 lakh. A company fixed deposit can let you invest up to Rs.1 crore for a tenor ranging between 1 year and 5 years. For recurring deposits, the usual maximum investment limit is capped at Rs.15 lakh.       

The Bottom Line

Your confusion and doubts should have been clear by now as you just read the basics and differences between a fixed deposit and a recurring deposit.

 

If you are looking for a short-term investment option with higher interest and ROI, a fixed deposit will be good for you. And if you want to invest some amount each month for a long-term, RDs will be apt for you. Happy investments!