Fixed deposit v/s Recurring deposit- what to choose?

Fixed Deposit

Fixed Deposit is a financial tool used by many people. People with Fixed Deposit(FD) get more interests rate than what saving account offers. It is also known as Bonds and is very safe investments. The interest rate of FD usually varies between 4-7.25%.  The tenure of a FD can vary a lot it can be 15, 30 days or can be as high as 10 years. It may or may not require any a separate account depending on the bank or NBFCs offering the service. They are safer because they are covered by the Deposit Insurance and Credit Guarantee Corporation (DICGC). DICGS is a subsidiary of Reserve Bank Of India and is solely responsible for insurance for all the bank deposits. A maximum of Rs 1,00,000 is insured for each user for both principal and interest amount.

fd vs rd

Benefits of FD

  • High-interest rate than s savings account
  • The customer can get loans up to 90 % of the amount deposit at 1-2% over the rate offered.
  • Some FD schemes offer Tax Benefit too.
  • No risk investment
  • Very easy to open a FD account online.

Types of Fixed Deposits

Normal/Standard Fixed Deposits

Features

  • Fixed tenure
  • Standard interest rates

Special Fixed Deposits

Features

  • The higher rate of interest
  • Can take loan
  • Additional benefits

Tax Saver Fixed Deposits

Features

  • Cannot be broken until completion of tenure
  • The interest gained on these deposits are taxable
  • tax exemption can be claimed

Cumulative Fixed Deposits

Features

  • Interest paid with the principal at the time of maturity
  • Not ideal for those without a regular income like pensioners etc.
  • Interest is compounded on a weekly, bi-weekly, monthly, quarterly, half-yearly or yearly basis
  • This leads to higher gains, making it a more profitable form of investment

Non-Cumulative Fixed Deposits

Features

  • Good option for pensioners
  • Extra income
  • The account holder can choose at what interval dividend should be paid
  • Usually one tends to earn lesser on the whole in this scheme when compared to cumulative fixed deposit scheme

Flexi Fixed Deposits

Features

  • Provides flexibility
  • Convenient
  • A savings account is linked to the term deposit

 

Recurring Deposit

Recurring Deposit is a special kind of term deposit that offers a monthly deposit till a decided amount of time. This time can be 6 months to 10 years. The depositor enjoys the interest rate of up to 7.29%. This is also a very safest and easiest investment. This kind of investment gives the opportunity to the do savings with regular monthly savings.

Benefits of RD

  • Safe investment
  • Earn while you save
  • Lump sum payout
  • Online access
  • Loan offers

Types of Recurring Deposit

Regular savings scheme

  • Age- 18 and above
  • Time period-6 months to 10 years
  • At the end of the tenure, lump sum amount can be withdrawn
  • As little as Rs.10/month
  • Intrest rates-7-8% per annum

Junior RD Schemes

  • Recurring Deposit schemes for kids, Parents or guardians can open these deposits for their children
  • Interest can be equal to or higher than regular RD.
  • Time period-6 months to 10 years

Senior Citizens RD Schemes

  • Interest rates-5% to 9.25% per annum
  • Designed to help senior citizens during their retirement and old age
  • Time period-6 months to 10 years.

NRE/NRO RD schemes

  • lower interest rate
  • 50% interest per annum
  • Best for NRIs
  • Time period-6 months to 10 years

Special RD Schemes

  • The higher rate of interest
  • Goal oriented
  • Other people can also contribute to help you reach your goals
  • Certain schemes allowed to withdraw the money in part without breaking the full deposit
  • The bigger lump sum amount
  • Some RD offers free life insurance.
  • Time period-6 months to 10 years

Key point when comparing-

Recurring Deposit and Fixed Deposit

Features / Scheme

Recurring Deposit

Fixed Deposit

Tenure

7 days to 10 years 1 year to 10 years

Limit

Minimum-Rs. 100

Maximum- Rs. 1.5 lakh.

Minimum-Rs. 1000

Maximum- Rs. 15 lakh

Interest

6.96% to 8.00%. 5.25% to 7.90%

Tax Benefit

Tax Exemption is provided No tax if interest earned is up to Rs.10,000.

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