Fixed deposits (FDs) and recurring deposits (RDs) are two popular types of investment options offered by banks and other financial institutions. Both FDs and RDs are low-risk investments that offer a guaranteed return on investment. However, there are several differences between the two that investors should be aware of.
Fixed Deposit
A fixed deposit is an investment option where an investor deposits a lump sum of money with a financial institution for a predetermined period, ranging from a few months to several years. The deposited amount earns a fixed deposit rate of interest, which is determined at the time of investment. The interest rate on fixed deposits is generally higher than that of a savings account.
The interest rate on fixed deposits depends on the tenure of the deposit and the prevailing market conditions. In general, longer tenures offer higher interest rates, and the interest rates are higher for senior citizens than for regular customers.
One of the key benefits of fixed deposits is that they offer guaranteed returns. Once you invest your money in a fixed deposit, the interest rate and tenure are fixed, and you are guaranteed to receive the principal amount and the interest amount at the end of the tenure. This makes fixed deposits a low-risk investment option, making them popular among conservative investors.
Recurring Deposit
A recurring deposit is an investment option where an investor makes regular deposits, usually monthly, for a fixed tenure. The deposited amount earns a fixed rate of interest, which is determined at the time of investment. The interest rate on recurring deposits is generally higher than that of a savings account, but lower than that of fixed deposits.
The interest rate on recurring deposits is determined by the tenure of the deposit and the prevailing market conditions. Similar to fixed deposits, the interest rate is higher for senior citizens than for regular customers.
One of the key benefits of recurring deposits is that they offer a disciplined way of savings. By making regular monthly deposits, investors can accumulate a sizeable corpus over a period of time. Moreover, recurring deposits are flexible, and investors can choose the tenure of the deposit according to their financial goals.
Difference between Fixed Deposit and Recurring Deposit
The following are the key differences between fixed deposits and recurring deposits:
Investment Amount: In a fixed deposit, the investor makes a lump sum deposit, while in a recurring deposit, the investor makes regular monthly deposits.
Interest Rates: The interest rates on fixed deposits are generally higher than those on recurring deposits. Moreover, the interest rates on fixed deposits are usually fixed for the entire tenure of the deposit, while the interest rates on recurring deposits may change during the tenure.
Tenure: The tenure of a fixed deposit can range from a few months to several years, while the tenure of a recurring deposit is usually fixed, ranging from six months to ten years.
Liquidity: Fixed deposits are less liquid than recurring deposits. If you withdraw your money before the end of the tenure, you may have to pay a penalty, and you may also receive a lower interest rate. On the other hand, recurring deposits are more liquid, and you can withdraw your money at any time without penalty.
Regular Savings: Recurring deposits are a good option for investors who want to save regularly, while fixed deposits are a good option for those who want to invest a lump sum of money.
Conclusion
Fixed deposits and recurring deposits are both low-risk investment options that offer a guaranteed return on investment. While fixed deposits are better suited for lump sum investments, recurring deposits are better suited for regular savings. The choice between the two depends on an investor’s financial goals, risk appetite, and investment horizon. Before investing in either fixed deposits or recurring deposits, it is important to compare the interest rates, tenure, and liquidity options offered by different financial institutions.
