Difference Between FD and RD: Which One Fits Your Investment Goals Best?

In modern times, the bank investment instruments are neglected. However, these accounts can help generate returns with heavy market risk. Two crucial investments are recurring deposit accounts and fixed deposits. Understanding the difference between RD and FD can help provide required diversification.

The FDs are suitable for lump sum investments while the RDs require disciplined regular deposits. Due to this crucial difference the FD returns are usually higher compared to RD. Apart from this distinction, let’s discuss these instruments in detail and explore the FD and RD difference.

Difference between FD and RD

Due to many similar features, investors may be confused about what is the difference between FD and RD. Here’s a detailed table for the same:

Point of Difference	Recurring Deposit (RD)	Fixed Deposit (FD)
Deposits	At frequent intervals, a fixed amount is deposited in the RD account.	It requires a lump sum investment.
Minimum investment	Monthly deposits can be as low as ₹50.	Lower than other investment instruments but higher than RD.
Interest	Due to low minimum investment and frequency, cost is averaged out. Therefore, lower interest than FD.	It is one of the higher interest-paying bank instruments. Tenure and FD interest are directly related.
Taxation	TDS of 10% with a threshold of ₹40,000 for all and ₹50,000 for senior citizens.	TDS is similar to RD, but investors can get a deduction under section 80C of the Income Tax Act 1961 for 5-year tax-saving FD interest.
Renewal	At the end of tenure, the old cannot be renewed and the depositor has to start a new RD.	At the end of tenure, the FD can be auto-renewed.

Evaluating the features of both these instruments and aligning them with personal financial objectives can help investors answer the debate about recurring deposits vs fixed deposits.

About Fixed Deposits (FDs)

These are crucial instruments which have contributed significantly to encouraging the saving habits of Indians. FDs allow investors to put in a lump sum amount and earn a fixed interest over it. In this, the investments are locked for a particular period. However, depositors can withdraw it after paying a certain penalty or losing the interest for the rest of the investment period.

Significance of Fixed Deposits

FDs can provide a significant safe diversification for an investor’s portfolio. Apart from this, FDs play a crucial role as follows:

They do not require a high minimum investment and are very safe compared to other investment options.
Compared to other accounts, FDs generate higher interest.
A 5-year non-taxable FD can help reduce the tax liability.
Investors can withdraw the FD amount anytime. However, it may attract some penalties.

Types of FDs

There is a diverse range of types of FDs.

Particulars	Details
Short, medium or long-term FDs	Maturity from 7 days or more.
Regular FDs	Relatively a regular and small amount of FD.
Individual or Joint FDs	These have a single depositor or allow two or more people together.
Cumulative vs Non-Cumulative	In the former type, interest is paid at the end of tenure, while in the latter one, the interest is paid regularly.
Senior Citizen	People aged above 60 years can invest in them.
NRIs Fixed Deposit	The investors falling in the legal definition of NRI can invest in this type.
Flexi FDs	Depositors can withdraw part funds from FD in this type.
Corporate FDs	These are issued by the companies.
5-year Tax saving FD	They offer deduction under section 80C of the Income Tax Act, 1961.

Note: The minimum investment, tenure, interest rates, and other regulations may differ for every institution. Investors should inquire about them carefully before investing.

How to Open an FD Account Online?

Step 1: Log in to your bank/financial institution’s website or mobile application.

Step 2: Click on the investments section and select the FD option.

Step 3: Explore available options. Check their tenure, minimum amount, type and interest rate.

Step 4: Process the Know Your Customer (KYC) if not done before.

Step 5: Fill in the details regarding the name, amount, nomination, etc.

Your FD application will then be processed by the concerned authorities.

How to Open an FD Account Offline?

Step 1: Visit the nearest branch of the concerned organisation.

Step 2: In the forms section, one can get the FD form. Otherwise, bank employees can also be asked for the same.

Step 3: The form would require details like the account holder’s name, account number, branch, FD amount, etc.

Step 4: Individuals can submit this form and amount to the bank clerk for further processing.

In just a few working days, the FD account will be activated. While exploring the debate of fixed vs recurring deposits, we also require a detailed understanding of the RDs.

About Recurring Deposits

Similar to modern-day Systematic Investment Plans (SIPs) in mutual funds, this account demands disciplined and frequent investments. Investors willing to allocate a specific part of their regular income to a safe investment may find this account suitable. Moreover, investors may get the benefits of cost averaging in RDs.

Significance of Recurring Deposits

Some key points of RD investments are as follows:

It requires a small and regular investment amount.
If suitable, investors can use the ‘standard instruction’ facility, which will deduct the investment amount regularly from savings accounts.
It earns more return than a savings account.
Investment costs may be averaged at the end of investment tenure.
The matured RD can be reinvested to start a new RD.

Types of RDs

There are mainly five types of RDs, classified based on their depositors and amount:

Particulars	Details
Regular RD	Investors deposit fixed amounts at regular intervals and earn interest.
RD for Minor	Here, parents or guardians manage the RD for the child below 18 years.
RD for NRI/NRE	Non-Resident Indians/Non-Resident Externals can invest in this type of RD.
Senior citizen RD	Investors above 60 years can invest in this type. It may attract more interest than other types.
Flexi RD	Here, investors are given the freedom to deposit different amounts at frequent intervals.

Note: The minimum investment, tenure, interest rates, and other regulations may differ for every institution. Investors should inquire about them carefully before investing.

How to Open an RD Account Online?

Step 1: Log in to your bank/financial institution’s website or mobile application.

Step 2: Navigate to the investment section and select the RD option.

Step 3: Explore the types and select the suitable one.

Step 4: Investors may be required to submit Know Your Customer (KYC) documents if not done before.

Step 5: Enter the suitable date for a monthly deposit, amount and tenure.

RD account will be activated, and a specific amount will be debited to this account every amount.

How to Open an RD Account Offline?

Step 1: Visit the nearest branch of the concerned organisation.

Step 2: In the forms section, one can get the RD form. Otherwise, bank employees can also be asked for the same.

Step 3: The form would require details like the account holder’s name, account number, monthly RD amount, deposit date, etc.

Step 4: Individuals can submit this form and amount to the bank clerk for further processing.

In a few working days, the RD account will be activated.

FD vs RD: What to Choose?

One size may not suit every individual. A depositor needs to assess the following aspects before deciding the better or more suitable option between FD vs RD.

Investment amount: A potential lump sum amount will suit for FD investment and Regular deposits for RD.
Tenure: Based on the available tenure of different FDs and RDs, one can decide it.
Issuing entity norms: These instruments are available in banks, Non-Banking Finance Companies (NBFCs) and other financial institutions. Their interest offering and other norms need to be checked.

Conclusion

Deciding the suitability between these instruments can be facilitated by understanding the difference between FD and RD. The interest rates, tenures and other norms may change for every other institution. Therefore, analysing the options and aligning them with financial objectives is crucial.

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FAQs on FD vs RD

Can I earn similar interest amounts through FD and RD?

Usually, FD rates are higher than RD due to their lock-in feature and lump sum investment requirement. Investors may not get similar returns in both accounts. One needs to manage the tenure and investment amount to earn similar interest in both.

Who can invest in an RD?

Individuals willing to allocate a part of their regular income towards savings may find RD suitable. It requires disciplined investments and would not require a large lump sum amount.

Who should invest in an FD?

FDs have the lock-in and one-time investment feature. Investors having lump sum amounts or willing to earn returns for a financial objective after a specific period may find FD as a suitable option for investment.

Can I withdraw my RD amount at any point in time?

Yes, they do not lock the funds. However, investors may be penalised by some charge for early withdrawal. Also, they will lose the interest for the rest of the investment period.

Can I apply for a loan on my FD account?

Yes, FDs can be used as collateral for a loan based on their investment value. After this, investors cannot withdraw amounts from this FD. Moreover, loans can be of some % of the total FD value.