Investments that earn a higher and fixed rate of returns allure risk-averse investors. Recurring deposits and fixed deposits are such investments and preferred by most investors to build a corpus to fulfill their financial goals. However, there are differences between RD and FD. Let us find out the important aspects of both investment avenues.
Recurring Deposits (RD) are special term deposits where individuals can invest a fixed amount on regular intervals to earn interest at the rate of fixed deposits. Most banks and post offices offer RD facilities where investors need to deposit a fixed amount of money into their recurring deposit account generally on a monthly basis. The depositor should have a savings account in that particular branch of the bank or post office to start a recurring deposit. You can deposit RD installments online/offline.
Minimum limit to start RD account is Rs.10 only. So, whatever your earnings allow you to invest, you can invest in an RD. RD investment is available for a period of 6 months to 10 years. You can accumulate a corpus to fulfill both of your short-term and long-term investments.
Fixed Deposits (FDs) are one of the simplest investment products. Almost every investor, whether small or big, has fixed deposit accounts, at least one FD account. Fixed deposits are known as the safest investment. An individual having an accumulated amount of money and wanting it to keep safe and earn interest for him will prefer FD accounts than the stock market or any investment products.
FDs offer a higher and stable rate of returns. Once you have deposited your funds in an FD, interest rates will be fixed for the entire lock-in period of FD. You can open an FD account with Bajaj Finance for as low as Rs.25,000 with flexible tenor from 12 months to 36 months and earn high interest rates up to 6.85%. Apart from high interest rates, Bajaj Finance FD also offers assurance of returns backed by CRISIL and ICRA ratings.
Following are the brief points that help you to understand the difference between RD and FD.
Purpose of Investment
If an investor has a regular income and wants to accumulate a considerable amount with his/her savings, they are likely to choose a Recurring Deposit. You can start a recurring deposit account with a very small amount on a monthly installments basis. Even, there are some banks that offer recurring deposit accounts with quarterly or half-yearly deposit installments. So people having little earnings can also invest in RD schemes.
On the other hand, if you have a lump sum amount which is your idle savings, you can invest in fixed deposits. It will be safe and earned for you at a fixed rate of returns. You can reap high returns on your savings.
RDs earn interest on a recurring basis. The first installment of your RD will earn interest for 12 months, second installment for 11 months, the third installment for 10 months and so on.
Whereas FD interest will be calculated on your entire deposited amount, so you will earn a higher interest amount than RD installments.
Rate of returns
At first, you will enjoy the same interest rates on recurring deposits as on fixed deposits. So, RDs are really an effective investment product to earn high returns. Secondly, RD accounts earn compound interest quarterly. Your savings and interest on your savings both are earning for you.
In case of fixed deposits, once you have deposited your funds into an FD account, your FD interest rate is fixed for the entire tenor. It will not be affected by market influencing factors. Thus, your returns are fixed and assured to be received at the maturity date.
Hope now you have understood both deposits and can choose investments as per your financial requirements to meet your financial goal.