Fixed deposits and recurring deposits both are low-risk investments and categorised as fixed-income financial assets. The best option from RD and FD for an investor depends on a lot of personal preferences. Before checking FD and RD on different grounds, let us elaborate on what these two investment options exactly are.
Fixed Deposit (FD) is the financial instrument where investors can deposit a lump sum amount for a fixed lock-in period to earn assured returns at the fixed rate of returns. You can choose an FD tenor as per your financial needs. The rate of interest will remain fixed and unaffected by the market forces for the entire tenor. And the interest income can be received periodically or at the maturity date as the choice of the investor. Therefore, fixed deposits are the safe investment option offering a flexible tenor facility and generating regular income as well.
Fixed deposit accounts can be opened with banks, non-banking financial companies (NBFCs) or post offices. Corporate FDs with NBFCs are popular for higher interest rates comparatively.
Recurring Deposits (RD) allows investors to invest in regular intervals for the entire tenor chosen by the investor. They can make deposits for 6 months to 10 years. Once the tenor is completed, the total accumulated amount with interest will be credited back to the investor’s savings account. You can start an RD with bank or post offices. With NBFC, for higher interest rates, you can start a Systematic Deposit Plan (SDP).
For senior citizens, corporate FDs are equally profitable like senior citizen saving scheme because of a higher interest rate for them.
Recurring Deposit Vs Fixed Deposit
Depositors are allowed to close their FDs before the maturity date. They can withdraw FD after six months of opening the FD account. On the other hand, post office RD can be withdrawn prematurely after three years of RD account opening. Depositors should note that if the RD is withdrawn prematurely even one day before the maturity date, the savings account interest rate will be applicable to your funds.
There is another side also of premature withdrawal. If a depositor has made advance deposits for RD, even then the premature closure of the account is not allowed. Depositors cannot withdraw funds until the period get over for which the advance deposits have been made. Thus, on emergency grounds, post office RD fails to provide funds.
Loan Against Deposit
Depositors can be granted a loan against FD after three months of FD account opening he/she needs funds urgently. The loan value may go up to 70% of the FD value. On the other hand, the depositor may avail of a loan against post office RD only after making twelve installments. The loan value can be up to 50% of the accumulated funds in the RD account.
FD account holders have the options to receive interest periodically on the basis of monthly/quarterly/half-quarterly/annually. On the other hand, RD account holders will receive the interest on the maturity date only. Therefore, it is not a regular income generation tool like fixed deposits.
How Does One Choose Between The Two?
- The amount you have to invest in a deposit.
- The interest payout frequency an investor wants.
- Consider premature withdrawal conditions.
The Bottom Line
Thus both fixed deposits and recurring deposits help you to save and the choice depends on your financial position and requirements. Considering all these common parameters given here for fixed deposits vs. recurring deposits and head to a comfortable investment option for you. Senior citizens having accumulated amount and looking for profitable senior citizens savings scheme can keep their funds in a corporate FD account for the higher interest rate. Bajaj Finance FDs are attractive with interest rate up to 7.25% for senior citizens.