The Important Differences Between Fixed Deposits And Recurring Deposits

Major Differences between FD and RD
Conclusion

In Fixed Deposit, an amount is deposited for a fixed period of time. A fixed deposit provides interest on the deposited amount.

Whereas, in Recurring Deposits,the customer deposits fixed amounts in small intervals for a long period. The main purpose of a RD is to develop the habit of saving on a regular basis. When the term of RD expires, the whole amount is repaid along with the interest amount. The repeated occurrence of deposits makes it different from FD.

Major Differences between FD and RD

In RD, an investment is made at a fixed period, whereas in FD, the investment is one-time
RD works well for people who wish to invest minimal amount monthly or at any fixed period
The investment in FD is a higher lump sum.

Their differences are discussed in further detail:

Duration

For fixed deposits, the minimum duration is 7 days and for recurring deposits, the minimum duration is six months. The maximum duration for both schemes is 10 years.

Taxation

Both fixed deposit and recurring deposit are taxable i.e. interest earned on both the schemes is taxable. In the case of RD, it is not mandatory to pay TDS, but the individual has to mention interest earned at the time of filing ITR (income tax return). In a fixed deposit, if the interest earned on deposit amount is more than Rs. 10,000, the account holder has to pay TDS. This limit will be revised to Rs 40,000 from April 1, 2019. The TDS is 10% if the PAN is submitted, if not, then 20% TDS is liable.

Returns

When returns in FD or RD are compared, then FD seems to give higher returns. The reason is that in RD, the account holder deposits monthly and therefore, the interest is also earned accordingly. Usually, the FD amount is deposited once, and is a lump sum that earns a higher interest rate. AU bank offers monthly payout on FD as well.

Conclusion

The scheme which serves you better, totally depends on your requirement. In fixed deposits, the Interest earned is higher but recurring deposits are more flexible because they let you deposit in small amounts. Choose wisely, earn better.

Also read- In Summary, A Guide To Term Insurance Riders

Here's Why Your Term Plan Needs A Critical Illness Benefit Rider.

Disclaimer

This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.