There is a whole world of investment options out there, with many ways to increase your savings. Fixed deposits and Recurring deposit are among the best ways to mobilize your idle savings and have them work for you.
The common features of FD and RD are given below:
Pointers | Fixed Deposits | Recurring Deposits |
Pointers | Fixed Deposits | Recurring Deposits |
Purpose | Enables investors to mobilize idle savings and earn with a higher rate of interest than regular savings bank account. | Incalculates a regular habit of savings among the public. |
Duration | Minimum: 7 days Maximum: 10 years | Minimum: 6 months Maximum: 10 years |
Eligibility | All Indian residents and Hindu Undivided Families (HUFs). | All Indians residents and Hindu Undivided Families (HUFs) |
Compound Interest and Impact of Compounding Frequency | Interest on investments made in a FD compounds, and earns interest on the new balance after each compounding. The following formula explains this further: Where: A = Final Amount that will be received P = Principal Amount. r = Annual nominal interest rate. n = number of times the interest is compounded per year. t = number of years | Most banks that offer Recurring Deposit usually compound interest on a quarterly basis. Compound interest is interest that is added to the principal amount so that from then on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding. The following formula gives you the total amount one will get if compounding is done: Where: M = Maturity value. R = Monthly instalment. n = Number of quarters. i = Rate of interest/400. |
Renewals and withdrawals of Fixed Deposit Accounts |
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Nominations under Fixed Deposit Schemes |
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Loan Facility |
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Income Tax |
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It all depends on your needs. A fixed deposit account earns interest in a compounding manner on the initial lump sum deposited. The entire amount earns money for 1 year, but in the case of recurring deposits, the first instalment earns interest for 12 months, the second for 11 months, the third for 10 months, and so on until the end of the deposit term.
In real time, you make more money with a fixed deposit (As illustrated by the below example), but it does not have the flexibility of a recurring deposit account in terms of being able to deposit smaller amounts as and when they become available to you.
The interest rates on fixed deposit are much higher than recurring deposits. Hence, investing in a FD is better than investing in an RD.
No, RD is not tax free.
FD is not tax free.
The rate of interest offered by fixed and recurring deposits depends on many factors such as the amount deposited, the tenure of the deposit, and current market rates. In most cases a similar rate of interest is offered for both fixed deposits and recurring deposits.
Yes, most of the banks allow premature withdrawal of both recurring deposits and fixed deposits with a small penalty. However, it is advisable to check with the bank concerned to see if this facility is available.
The advantage with recurring deposit is that you can make small deposits at regular intervals, while fixed deposits require you to submit a lump sum amount at the beginning of the tenure.
Depending on your personal financial goals and tenure choices, both fixed deposits and recurring deposits can be suitable for your short-term goals. However, a recurring deposit might be a better option for a shorter duration because it allows monthly deposits.
Yes, you can avail yourself of tax benefits with both FDs and RDs. However, under certain conditions, investments in tax-saving FDs (with a lock-in period of five years) are eligible for tax deductions under Section 80C of the Income Tax Act.
Yes, you can avail yourself of a loan against both FD and Rd. Most of the banks provide this facility. This allows you to leverage your deposits without breaking them prematurely.
Your decision to choose between RD and FD should be based on your investment objectives, tenure preference, liquidity needs, and risk appetite. Consider interest rates, liquidity, and penalties for early withdrawals before deciding. Talk to a financial advisor to help you make an educated decision.
Yes, the rate of interest is the same for fixed deposits throughout the tenure.
You can open a fixed deposit account at any bank branch or online through the bank’s official website. You will need to fill in the application form and provide proof of identity, address, PAN card, etc.
Yes, you can apply for both RD and FD at the same bank.
Yes, you can apply for multiple RD at the same bank.
To open an RD account, visit the bank branch or use the online banking portal, fill out the application form, and provide the necessary documents such as identity proof, address proof, and PAN card. Once the account is opened, set up the monthly deposit mandate, and your RD will be active.
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