What Is the Difference between Fixed Deposit and Recurring Deposit| North Loop Official Blog
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21 Jul 2020

What Is the Difference between Fixed Deposit and Recurring Deposit

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A good financial plan can act as a guide to manage your finances as you go through life. It can help you to be in control of your income, expenses, investment and also meet your desired financial goals. One of the most common and safest ways to do so is by investing in bank deposits. Bank deposits are easy to operate, manage and also provide a fixed source of income.
But how do you choose between the different types of deposits that banks offer? Let us understand that in detail by learning about the features, benefits and differences of the two primary bank investment options – Fixed Deposits (FDs) and Recurring Deposits (RDs).

<h1>Before talking about the differences between the two, let us understand the features of FDs and RDs – </h1>

Fixed Deposit – In this type of investment, you earn interest on a lump sum amount paid at the beginning of a term. The principal and interest earned are redeemed by you at the end of the specified tenure.

Recurring Deposit – This is an investment in which you have to invest a fixed amount of money each month. The interest is at a predetermined rate and the returns earned by you can get redeemed at the end of the tenure, along with the principal amount.
Profile image2: <h1>Before talking about the differences between the two, let us understand the features of FDs and RDs – </h1>
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<h2>Benefits of bank FDs and RDs – </h2>

Fixed Deposits and Recurring Deposits are fixed-income investments and offer a fixed rate of interest throughout the tenure of the deposit. Both of them offer a guaranteed return on maturity that includes your invested capital and accumulated interest. Since the maturity amount is known upfront for both, they are a useful tool for planning your future financial goals and expenses. Moreover, you can avail a loan against both from a bank, with the deposits used as collateral.

<h3>Differences between FD and RD – </h3>

  • Purpose – Fixed Deposits and Recurring Deposits are both safe financial instruments that allow you to earn guaranteed returns on your investments. However, an FD helps you to invest idle cash for a set amount of time ranging anywhere from 7 days to 10 years while an RD requires you to deposit a predetermined amount every month in the RD account.
  • Interest Rate – The minimum principal deposit and the interest rate on FDs and RDs varies from one bank to another, as it depends on the deposit tenure as well as the type of FD/RD scheme chosen by you at the time of investment. Since there are different RD schemes available for you to invest in, the interest rate also varies depending on the scheme you have opted. For a period of one year, the current interest rate for an FD varies between 5.10% and 6.75% and that on an RD between 6.40% and 7%. But the interest earned on an FD for the same tenure is higher because when you invest a lump sum amount in an FD, the entire money earns interest for one year. However, in a Recurring Deposit, the first instalment earns interest for 12 months, the second for 11 months, third for 10 months and so on. To receive high returns on FDs, you should choose a bank which offers the best interest rate, such as North Loop. This banking platform offers the industry-highest rate of 7.5% along with fixed, safe and guaranteed returns.
  • Tenure - The tenure of a Recurring Deposit can range from six months to ten years. On the other hand, the tenure of a Fixed Deposit can be as low as seven days and can go up to 10 years.
  • Minimum investment – There is no specific limit on the amount that can get invested in a fixed deposit scheme, but some banks have a maximum prescribed limit of Rs.1.5 lakh. For Recurring Deposits, the investment limit usually varies with different banks with most of them having a minimum and maximum limit of Rs.1000 and Rs.15 lakhs pm respectively.
  • Liquidity - Both FDs and RDs have a fixed maturity. However, you can also make partial withdrawals after paying a penalty set by the respective bank, which is usually 2% of the principal amount. For the foreclosure of FDs and RDs, you normally have to pay a penalty that applies to your bank.
  • Tax Deducted at Source (TDS) - In case of a fixed deposit, banks deduct 10% of your interest income as Tax Deducted at Source (TDS) if your yearly interest in a financial year exceeds Rs.10,000 and your PAN is submitted. But it is charged at 20% if you have not given your PAN details. However, TDS is not applicable on the interest earned from a Recurring Deposit.

<h4>How can you choose between the two? </h4>

You can choose the option best fit for you based on your availability and need for funds.If you have a lump sum amount which you want to invest, you can consider bank FDs as they can generate higher earnings for you as compared to bank RDs.However, if you are more comfortable in making small and fixed investments every month, then bank RDs are a suitable option for you.

To learn more about high-interest rate bank FDs, click here.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.