As of 2014-15, Indian households had invested close to Rs 274billion[S1] in non-banking deposits. Even though various investment options have emerged since liberalization, a significant chunk of Indians still seems to prefer the safety offered by Fixed Deposits (FD)and Recurring Deposits (RD).
In Fixed Deposits, the client chooses a fixed amount, and that amount is deposited in the bank for a fixed period. Interest is provided on the deposited amount as per the fixed deposit. It is essential to choose a fixed deposit that offers the best fd rates.
In Recurring Deposits, a fixed amount of money is deposited by the customer in small intervals for an extended period. The main motto of the recurring deposit is to develop a habit of saving some money regularly. After the term expiry of RD, the entire amount is repaid along with the interest amount. The significant difference between FD and RD is that there is a repeated occurrence of deposits in RD.
Usually whenever depositors have access to a lump sum amount they prefer depositing it in a fixed deposit. If depositors have a goal in mind which needs to be achieved after a few months or years and are unable to produce a lump sum, they choose to invest in a recurring deposit.
Major Differences between FD and RD
- In the case of Fixed Deposits, it is a one-time investment, whereas, in the case of Recurring Deposits, the investment is made at fixed intervals.
- RD is the best option for those people who want to invest small amounts monthly or any fixed period.
- FD investment is a higher lump sum.
The minimum duration period for fixed deposits is seven days, while the same for recurring deposits is six months. The maximum period of term for both the schemes is of 10 years.
The interest that is earned on both FD and RD is taxable. It is not mandatory to pay TDS in the case of RD, but the customer has to mention the interest that has been earned while filing ITR. In the case of FD, the customer has to pay TDS if the interest that has been received on the deposited amount is more than Rs. 10,000. The TDS will be 10% if the account holder submits PAN and it is 20% if not.
While comparing the returns of FD and RD, it has been observed that FD provides higher yields. The reason behind it is that in the case of RD, the customer has to deposit amount monthly, and due to this, the interest is also earned accordingly. Generally, the amount of FD is deposited once due to which the interest rates are higher. Several companies provide best fd rates in the market.
It depends upon your requirements that which option is better for you. The interest earned is higher in fixed deposits while recurring deposits are considered to be more flexible as it allows you to deposit small amounts of money. You decide to choose your scheme as per your requirements.