Identifying The Distinctions Between FD And RD

A Fixed Deposit or FD is a fixed-term investment option offered by banks wherein an individual can deposit a lump sum amount for a predetermined period. During the lock-in period, the amount deposited with the bank will earn interest as per the rate at the time of locking in the deposit.

Recurring Deposit or RD is another popular low-risk investment option offered by banks, especially useful for those who do not have a lump sum amount to invest. Under RD, an individual needs to deposit a pre-decided share of their income each month for short or long-term corpus creation.

Major Differences between FD and RD

Let’s take a look at the many factors that make each a unique investment.

• Manner of Investment

As mentioned earlier, a Fixed Deposit involves investing a lump sum amount for a fixed period. A Recurring Deposit, on the other side, is an investment option wherein you need to invest a fixed amount every month for a pre-decided tenure.

• Tenure

The minimum tenure for which one can make Fixed Deposits is 6 months whereas the same for Recurring Deposits is just 7 days. However, the maximum tenure for each of the two investments is 10 years.

• Interest

In case of a Fixed Deposit, three options are available regarding the interest amount.Interest may be credited on a monthly or quarterly basis or at the time of maturity. However, in case of a Recurring Deposit, interest is paid directly at the time of maturity along with the capital amount.

Also, the interest received on a Fixed Deposit is generally higher than that received on a Recurring Deposit. The reason being that in case of RD, the account holder deposits money on a monthly basis and hence, interest is earned accordingly as opposed to an FD, which is a lump sum amount.

• Minimum Investment Amount

To open a Fixed Deposit account, you need to make a minimum deposit of Rs. 10,000 whereas to open a Recurring Deposit account, the minimum amount of investment is Rs. 500.

• Taxation

Each of the two investments is taxable; meaning, interest earned in each scheme is taxable, if the interest earned exceeds Rs10,000 in a financial year, the same will qualify for TDS payment at the rate of 10%. The TDS will be 20 percent, if you fail to provide the PAN information to the bank.The bank also provides tax saver deposits Scheme with tenure of five years and deposit amount up to Rs. 1,50,000.

Conclusion

Despite their many differences, a Fixed Deposit and Recurring Deposit are similar to some extent. Firstly, each of the two is a fixed investment option; meaning, they are safe and secure, offering guaranteed returns at the time of maturity. Moreover, the interest rate in each of the cases is known beforehand, and the same remains unaffected by other market conditions. This means that the interest rate does not change throughout the duration of the lock-in period.

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