How is a Fixed Deposit Different from a Recurring Deposit?
29 November, 2024
Synopsis
Fixed Deposit (FD) and Recurring Deposit (RD) are both secure ways to grow your savings.
A Fixed Deposit is a lumpsum investment whereas Recurring Deposit allows you to save periodically.
Explore the various similarities and differences of FD and RD and choose the one that suits you best.
Fixed Deposits (FDs) and Recurring Deposits (RDs) are secure ways to grow your savings. FDs are for lump sum investments, while RDs are for regular contributions. Both FD and RD are relatively low risk investments. Understanding their differences helps in choosing the right option based on your financial goals and habits. This article explains the difference between RD and FD, along with their key features and benefits.
What is a Recurring Deposit Account?
The full form of RD is Recurring Deposit and it refers to a deposit scheme where individuals invest small, regular amounts monthly. RDs build savings without a large upfront investment. The principal amount earns fixed and quarterly compounded interest.
What are the Features of a Recurring Deposit Account?
The following are the key features of a Recurring Deposit account:
Regular Monthly Deposits: You can make monthly contributions, with a minimum of ₹500.
Fixed Tenure: RD tenures range from 6 months to 10 years, chosen at account opening and unchangeable later.
Interest Rates: RD interest rates are comparable to FDs, fixed at account opening and constant throughout the tenure.
Premature Withdrawal: It is allowed with penalties and the interest applied may be lower than the original rate.
Penalty for Non-Payment: Late payments may incur penalties, and multiple missed payments can lead to premature account closure.
Maturity: At maturity, you will receive the total deposits plus interest earned.
What is a Fixed Deposit Account?
The full form of an FD is Fixed Deposit. It is offered by banks and NBFCs, requiring a lump-sum deposit for a fixed tenure. They provide assured returns over periods ranging from 7 days to 10 years by banks and upto 5 years by NBFCs.
What are the Key Features of Fixed Deposits?
The following are the key features of a Fixed Deposit account:
Lump-Sum Investment: FDs require a one-time lump sum investment, which stays locked in for the entire tenure.
Fixed Tenure: FD tenures can range from 7 days to 10 years, chosen based on your goals.
Premature Withdrawal: It is allowed with penalties, often involving a lower interest rate and a nominal fee.
Loan Against FD: Banks offer loans up to 90% of the FD value.
Maturity Options: Investors can withdraw the principal and interest at maturity or reinvest. Some banks offer periodic interest payouts (monthly, quarterly, or annually).
FD vs RD: Know the Differences
The differences between a Recurring Deposit and a Fixed Deposit are as follows:
Investment Mode: RDs involve monthly contributions starting as low as ₹500, ideal for steady income and disciplined saving. FDs require a lump-sum investment that grows over a fixed period.
Investment Frequency: In a Fixed Deposit you are required to make a one-time deposit at the time of booking. Whereas in RDs, you are required to make monthly deposits throughout the RD tenure.
Interest Calculation: FDs earn interest on the entire amount deposited from the start, while RDs calculate interest on the growing balance as each monthly deposit is added.
Interest Payout: With FDs, you can choose to earn interest periodically (monthly, quarterly or half-yearly) or once the FD matures. Typically, your RD matures once the tenure ends, with no option for regular interest payouts.
Renewal Instructions: With FDs, you can reinvest the principal or principal + interest in the FD. But within RDs, you typically cannot reinvest the amount in the RD; you may convert it to an FD.
Similarities Between FD and RD
Interest Rate: FDs and RDs typically have the same rates, with rates fixed at account opening and constant throughout.
Liquidity: Banks may allow you to close the FD and RD before maturity, however, a penalty may be applicable.
Insured by DICGC: The Deposit, Insurance and Credit Guarantee Corporation (DICGC) insures bank deposits for up to ₹5 Lakh.
Taxation: Interest earned on FDs and RDs is taxable with senior citizens enjoying higher exemption limits under Section 80TTB of the Income Tax Act, 1961.
Invest in FD and RD Both Through HDFC Bank
FDs and RDs can be relatively secure investment options for different financial needs. FDs suit those with lump sum savings seeking for higher returns, while RDs may be suitable for regular savers. HDFC Bank offers both FD and RD options, making it easier for you to choose the right investment based on your objectives and income pattern. You can quickly open a deposit with HDFC Bank via NetBanking, MobileBanking or PayZapp.
Don’t have an account with HDFC Bank? Open a Direct Deposit FD.
*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.
