What is a Difference Between Recurring Deposit or Fixed Deposit

Confused whether to choose a Recurring Deposit (RD) or Fixed Deposit (FD)? You should first understand the intrinsic main differences between FD or RD these two investment avenues. Recurring deposits are financial instruments which help increase one’s savings. Investors can flexibly save a particular amount every month in a recurring deposit account for a particular tenor and earn interest on this amount as well. At the time of maturity, interest is paid along with the principal amount.

The tenor of recurring deposits usually ranges between 6 months and 10 years while the tenor of Fixed Deposits usually varies between 7 days and 10 years. There is compounding of interest every quarter for RD schemes generally while in case of FDs, compound interest is worked out on the interest garnered each year. Fixed Deposits with lock-in periods are sometimes eligible for tax benefits (you have to invest in tax-saver FDs) while recurring deposits do not have any tax benefits. The rates of returns are quite similar for FDs and RDs depending on the amount invested and tenor chosen.

Know more about Fixed Deposit vs. Recurring Deposits Which one to Opt For Investment

Most lenders also offer loans up to 90% of the deposit value in case of RDs while they also offer up to 70-90% of the deposit value as loans in case of FDs. Premature withdrawals are allowed with/without penalties in case of RDs, depending on the financial institution in question. Premature withdrawals are allowed in case of FDs by paying a nominal penalty. The interest earned on both investments are taxable and TDS is deducted by the lender from both. It has been seen that FDs offer higher returns than RDs on account of the compounding principle. If you are investing a lump sum of money for the future, Fixed Deposits are a better choice and at the same time, you can invest smaller sums of money each month in a recurring deposit to keep another investment option running.

Read More Why Fixed Deposit Win over Recurring Deposit