FD or RD? Which offers better returns? Know the difference between the two before investing..
Fixed Deposit vs. Recurring Deposit: While people are increasingly investing in the stock market and mutual funds these days, Fixed Deposits (FDs) and Recurring Deposits (RDs) remain the top choice for Indian families when it comes to safe, risk-free earnings. However, many people mistakenly believe that FDs and RDs are identical schemes; in reality, they differ in their operational methods, investment patterns, and the returns they generate. Therefore, it is important to understand the differences between them before investing.
Who is an FD best suited for?
If you have a lump sum amount—such as a bonus, maturity proceeds, or significant savings—a Fixed Deposit is an excellent option. It requires you to deposit the entire amount at once for a fixed tenure (e.g., 1 year or 5 years). The bank pays a fixed rate of interest for that period, and upon maturity, you receive the full principal amount along with the accrued interest.
Who is an RD best suited for?
If you are a salaried individual and do not have a large lump sum to invest upfront, a Recurring Deposit is ideal for you. It is perfect for those who wish to save in a disciplined manner every month. With an RD, you deposit a fixed amount (e.g., ₹1,000 or ₹5,000) monthly for a set duration. Students, young professionals, and salaried employees can use this method to gradually build a substantial corpus.
Interest rates are the same—so why do FDs yield higher returns?
Many people assume that if the interest rates for FDs and RDs are identical, the profits will also be the same. However, this is not the case. In an FD, your entire investment starts earning interest from day one. In contrast, with an RD, you deposit money in installments; consequently, the funds deposited in later months earn interest for a shorter duration. This is why FDs generate higher returns compared to RDs, even when the interest rates are the same.
Withdrawing money prematurely can lead to a financial hit! You reap the full benefits of both Fixed Deposits (FDs) and Recurring Deposits (RDs) only if you do not withdraw the funds before the maturity period. While premature closure is possible in case of need, banks typically levy a penalty or apply a lower interest rate. Therefore, choose the tenure carefully.
You can also opt for both simultaneously.
Smart individuals utilize both instruments to cater to different financial needs. For instance, you might invest a bonus in an FD while simultaneously starting an RD funded by your monthly salary to cover expenses for upcoming holidays or festivals.
Disclaimer: This content has been sourced and edited from News18 Hindi. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
