Even though there are a plethora of investment options available in the market today, people with low-risk propensity are usually inclining toward term deposits. Term deposit includes fixed and recurring deposits, both known for keeping the capital safe and gradually helping the investor build their corpus.
If you belong to the category of people who love to keep their capital safe, you must have a question – which is the better option? Comparing these two using FD calculator online and RD calculator online can showcase the monetary difference, but you also need to understand the basics.
This article discusses the basis of the difference between fixed deposits and recurring deposits to help you choose the better option for yourself.
What is a fixed deposit?
A fixed deposit is a traditional investment vehicle, wherein an investor invests a lump-sum amount for a fixed timespan. Here, the investor has to stay invested for the pre-decided period in return for a pre-decided return. If the investor wishes to withdraw the amount before maturity, they will receive a lower interest rate than previously agreed upon. You can use an FD calculator online to understand the accurate returns on maturity.
What is a recurring deposit?
As the name suggests, recurring deposits do not necessarily involve investing a lump sum. It, instead, allows the individual to deposit a fixed amount periodically, usually monthly, and earn the benefits of compounding. Here, the rate is predetermined, and so is the maturity period. Moreover, the investor is seldom allowed to withdraw the amount before maturity, but benefits from a loan against it.
Difference between FD and RD
| Basis of Difference | Fixed Deposit | Recurring Deposit |
| Deposit Frequency | Once | Periodic (monthly or quarterly) |
| Tenure | 7 days to 10 years | 6 months to 10 years |
| Interest Frequency | Monthly or quarterly payout available | No interest payout (in most cases) |
| Auto-renewal | Available | Not available |
| Default Clause | Here, the amount is received upfront. So, no chances of default | Here, if the individual fails to complete their payment for six consecutive periods, the bank/ post office has the right to close the account |
| TDS | TDS deducted if interest income exceeds INR 10,000 in a financial year | No such clause |
Wrap up
Are you still confused and unable to take a side in the fight between fixed deposits and recurring deposits? Let us summarize to help you solve the issue.
If you possess a sizeable sum currently and do not want to invest it in any other financial instrument, having a fixed deposit is the way forward. Meanwhile, if you desire to build a corpus gradually while keeping your capital safe, having a recurring deposit will serve your purpose better. You can use an FD calculator online, or an RD calculator online to settle the case.