Recurring Deposit Vs Fixed Deposit – Before making an investment, we all research a lot that which financial instrument is good for us. Whether we should invest in recurring deposits or fixed deposits or mutual funds. Sometimes we even take the help of financial advisor as well. The two majorly used financial instruments are the recurring deposit and fixed deposit. Here, we are going to tell you the difference between the two. So, that you can then decide which one is better for you according to your purpose of investment.
What is difference between Recurring Deposit and Fixed Deposit
What is Recurring Deposit vs Fixed Deposit
Let’s first know a little bit about the two. So, starting with Recurring Deposits, which is also known as RD. It is a kind of deposit where one can deposit a specific amount at fixed intervals in the banks or post offices or any other financial institutions for a long time. Whereas, in fixed deposits which are also known as FD, the investor has to deposit a certain amount in any financial institution for a long period of time.
Eligibility for Recurring Deposit Vs Fixed Deposit
Talking about the eligibility criteria for both Recurring and Fixed Deposit, so they have a slight difference in between them. For RD and FD both all Indian Residents and HUF’s (Hindu Undivided Families) can open the RD and FD account. But in Recurring Deposit, the account for the minor can also get open. Either the parents or the legal guardians or both of them can open an account for minors.
Purpose of Recurring Deposits Vs Fixed Deposits
When we talk about the purpose of both these financial instruments, so both are a safe way for the investment. But both of them serves a different purpose. Recurring Deposits focuses on the habit of regular saving as the investor has to deposit a fixed amount every month for a period of time. While the Fixed Deposit focuses on the investment of the idle cash or extra cash in the beginning for a number of days to a number of years.
Duration of Recurring Deposits Vs Fixed Deposits
From an investor’s perspective, this is very important to know that for how long they need to make an investment? And what will be the duration of the investment? So, for recurring deposits, one can open an account for minimum 6 months of time to maximum 10 years of time. Whereas for fixed deposits, one can open an account for minimum 7 days of time to maximum 10 years of time.
Rate of Interest for Recurring Deposits Vs Fixed Deposits
Talking about the Rate of Interest which one earns on the amount deposited varies for both RD and FD. It varies because of different factors like deposit amount and tenure. However, when we compare the rate of interest earned in Recurring Deposit to Fixed Deposit, the investment made in fixed deposit earns more rate of interest in comparison to the recurring deposit.
Tax on Recurring Deposit Vs Fixed Deposit
In a comparison of recurring deposits and fixed deposits on basis of taxes, both are taxable. That means, that the interest earned on both are taxable. Wherein RD one may not need to pay the TDS. But has to specify the interest amount earned in the Income Tax Return. In FD, if the interest earned exceeds or is more than Rs.10000, then the investor needs to pay the TDS. And the TDS charged is 10% if you have submitted your PAN Number. And 20% in case, if you have not submitted your PAN Number.
Principle Amount in Recurring Deposits Vs Fixed Deposits
The Principle Amount or the amount which the investor has to deposit varies in both. Because it is as per the different banks or financial institutions rules. But in Fixed Deposits, the investor needs to invest a slightly high amount in comparison to the Recurring Deposits.
Return on Recurring Deposit Vs Fixed Deposit
Comparing the returns on RD to the returns in FD, then the FD has a higher return then the RD. The reason behind this is that in recurring deposits one needs to invest every month. So, the investor earns the interest on the amount deposited every month. While in FD, the investor earns the interest on the complete sum of the amount he deposited in the beginning.
Withdrawal for Recurring Deposit Vs Fixed Deposit
When we talk about the withdrawal, then both the Recurring Deposit and Fixed Deposit have the same process for it. When the tenure for the RD or the tenure for the FD gets complete, the bank deposits the amount itself. The financial institution or the bank deposit the total sum in the saving or current account linked. Or through the overdraft account.
Pre-mature Withdrawal for Recurring Deposit Vs Fixed Deposit
In general, the bank does not allow the withdrawal of the amount before the completion of the maturity period. However, in case of emergency, one can withdraw the amount from Recurring Deposit Account also and Fixed Deposit Account also. But, as per the rule in both the cases, the depositor will have to pay the fine or penalty. It depends on the bank or the financial institutions that how much fine is charged. Generally, in both RD and FD, the interest rate is reduced as the penalty.
Nomination for Recurring Deposit Vs Fixed Deposit
In case of Nomination, the formalities and the requirement are same in case of both Recurring Deposit and Fixed Deposit. The investor can give the name of only one nominee per A/C in case of both RD and FD. The nominee’s name, address, age, relationship with investor or depositor, and legal guardian’s details is required. The nominee will receive the fund in case of the death of the depositor. But in both RD and FD, the nominee has to present a death certificate of the depositor. Or you can say proof regarding the death of the depositor.
Renewal for Recurring Deposit Vs Fixed Deposit
When comparing the Renewal for Recurring Deposit and Fixed Deposit, the RD renewal does not happen. The bank will transfer the maturity amount either to the savings account or in the Sundry Account of the bank. And, in that case, the bank inform the investor or depositor. While in the case of FD, the renewal happens. Either the bank deposits the total sum amount in the savings account given in the beginning. Or if the investor or depositor has mentioned for the auto renewal, it will get renewed automatically. Or if both are not possible, then the financial institution will try to contact the investor. But in case, if the bank is unable to do so, they renew the FD. And the rate of interest will be applicable on the maturity amount from the date of maturity.
Key Differences between Recurring Deposit and Fixed Deposit
- In recurring deposits, one needs to make an investment every month. While in fixed deposit it is a one-time investment.
- RD is good for the one who wants to save a nominal amount every month. While FD is good for those who want to invest their extra income for a long period of time. So, that they can earn higher returns on that amount.
- The total amount to deposit in the recurring deposit is nominal or minimal. While in fixed deposit the amount is generally high.
- Recurring Deposits is suitable for almost every family from a lower middle class to upper middle class. While Fixed Deposits need the high sum of the amount at one time. So, it might not be suitable for all the families.
Both of these have many differences and many similarities as well. So, you all can decide according to your need that which investment you need to make.