How Does The Fixed Deposit and Recurring Deposit Schemes Work?
Fixed Deposit and Recurring deposit are two most popular investment schemes in India, specially for the risk averse investors. The major advantage of investing your money in a fixed deposit scheme or recurring deposit plan is that there are fixed returns with no risk. But many a times, investors get confused if they have to invest in a RD plan or a FD scheme. Both RD and FD are fixed income products that are offered by all major banks and financial institutions. In both the schemes, you can invest a specific amount and on the amount invested, you will receive a fixed interest. At the end of tenure, investors will receive both the capital as well as the interest.
Major Difference Between FD and RD
When we talk about RD and FD, there is one single important difference that you must be aware of, before we talk about other differentiating points. While both RD and FD runs over a tenure, FD investors can deposit an amount once while RD investors must deposit a fixed amount at regular intervals.
- Customers who opt for fixed deposits will have to choose a tenure, which usually ranges from 7 days to 10 years, and must deposit an amount once. The interest on the amount will be credited to the investor’s account on a monthly or a quarterly basis.
- When it comes to recurring deposits, investors can deposit a fixed amount every month and can earn interests. The interest is paid along with the capital at maturity.
Recurring Deposit vs Fixed Deposit
|Features / Scheme||Fixed Deposit||Recurring Deposit|
|Tenure||Usually, for FD schemes, the tenure ranges between 7 days to 10 years. The investor can choose a tenure that he is most comfortable with.||Tenure for Recurring deposits usually vary from 1 year to 10 years. The customer has to deposit a fixed amount at regular intervals over the tenure.|
|Investment Limit||There is no limit on the amount that can be invested in a fixed deposit scheme. But, this limit generally depends on the bank and the minimum investment is Rs. 100 and multiples while the maximum limit is Rs. 1.5 lakh.||While there is no prescribed minimum or maximum limit, this usually depends on the bank. Many banks have the minimum investment limit as Rs. 1000 and and the maximum limit as Rs. 15 lakhs per month.|
|Rate of Return||For a period of an year, the interest rate varies between 6.96% to 8.00%. The interest rate depends on the capital and tenure opted for. The interest rate for FD is slightly higher than that of RD.||The interest rate varies between 5.25% to 7.90% for a tenure of one year. The rate of interest usually depends on tenure and monthly investment amount.|
|Tax benefits||For fixed deposit, a tax exemption under the section 80C of Income Tax Act 1961 is applicable.||Income tax will be not deducted if the interest you earn on your rd is up to Rs.10,000.|
|Documents Required||Identity Proof and address proof. Customers will have to submit documents like PAN card, passport and income documents, if required.||Address proof and Identity Proof. Investors will have to submit documents like PAN card, passport and income documents, if required.|
|Income Interest||Interest earned on your FD is taxable and most of the banks deduct TDS.||Interest earned on your RD is taxable and most banks do not have the facility of TDS.|
|Additional Benefits||Loan Facility|
|Withdrawal||At the end of tenure. Premature withdrawal is allowed with penalty.||At the end of opted tenure. Premature withdrawal is allowed with penalty.|
What Should You Choose - RD or FD?
For people who do not have a lump sum to invest in a FD, but can afford a small portion of investment amount from income every month, a recurring deposit (RD) seems to be the right fit. Both RD and FD are best suited for risk averse investors who are mostly in the lower tax slab. Use an online recurring deposit calculator to see what suits best for the amount that you can invest. Although one single investment product cannot meet all needs, a RD is preferred by many because it puts considerably less financial strain and gives almost the same returns as FD.
Read More Article on Recurring Deposit
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- Union Bank Cumulative Recurring Deposit Scheme
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- Difference Between LIC and Recurring Deposit
- Indian Bank Variable Recurring Deposit Scheme
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- PNB Special Recurring Deposit Scheme
- PNB Lakhpati Deposit Scheme
- Bank of Baroda Yatha Shakti Jama Yojana Scheme