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What Differentiates a Fixed Deposit from a Recurring Deposit?

When looking for the distinctions between Fixed Deposits and Recurring Deposits, it is clear that these two investments are very similar in many ways. Because of their similarities, many consumers get confused about FD vs. RD and struggle to decide whether to invest in a Fixed Deposit or a Recurring Deposit.

In this article, understand the key differences between FD and RD to make an informed investing decision and know all about these investing possibilities.

Understanding Recurring Deposit

Customers can set up automatic monthly instalments in any amount to save money whenever it’s most convenient. Recurring deposits are available from several financial institutions for periods ranging from 6 months to 10 years. There are no changes to the interest rate structure during the term. The principal is returned at maturity, and the interest can be paid semiannually, annually, or all at once, just like a traditional fixed deposit.

Understanding Fixed Deposit

Money invested in a fixed deposit earns a predetermined rate of interest and grows over time. There is a one-time fee at the beginning of the contract for this program. A typical fixed deposit term is between 7 days and 10 years. You can choose to receive interest on your FD semiannually, annually, or whenever the principal is paid. Place your money in a fixed deposit and watch it increase over time. Because interest rates tend to be constant over time, fixed deposits are secure and guarantee returns.

Key Differences Between FD and RD

It can be difficult to decide whether to invest in a Fixed Deposit (FD) or a Recurring Deposit (RD) unless you have a firm grasp of the distinctions between FD and RD. We have provided you with a full overview of the difference between FD and RD term deposits.

1. Frequency of Investment

A fixed deposit account allows you to invest a substantial quantity all at once. A recurring deposit, on the other hand, allows you to invest a little sum of money at regular periods. This is the primary distinction to be made when comparing FD and RD.

2. Deposit Duration

The time frame for a fixed deposit account extends from 7 days to 10 years. Individuals can also choose their own timeframe. A recurring deposit account, on the other hand, has a time frame ranging from 6 months to 10 years. The individual does not have the option of choosing the time range for investment in this case. This is also a significant distinction between FD and RD.

3. Interest Amount

At the end of the investment term, the interest earned on an FD is different than the interest earned on an RD. The interest rate on FDs is much higher than that on regular deposits.

4. Payment of Interest

A fixed deposit account pays interest monthly, quarterly, or at the maturity of the plan. The interest on a recurring deposit account, on the other hand, is only paid to the person at the end of the plan.

5. Motivation

When you put extra money into a fixed account, you get money back in the form of interest. With a recurring deposit, you get in the habit of saving money by spending a set amount of money for a set amount of time at a set interest rate.

6. Clause of Default

Because the payment is made all at once, individuals cannot miss payment due dates with a fixed deposit account. When it comes to recurring deposits, however, if a person does not pay the amount for 6 months in a row, the bank has the authority to close their RD account.

Common Characteristics of FD and RD

In the prior section, you were presented with details on how to differentiate between FD and RD. Now, let’s take a look at some of the parallels that can be seen between FD and RD.

1. Investing in Fixed Income

Both fixed and recurring deposits are investments with fixed income. They offer a return guarantee at maturity. Individuals are aware of the interest rate prior to making financial investments. In addition, the interest rate remains constant throughout the deposit period.

2. Guaranteed Profits

Even before investing in FD and RD, the returns can be calculated. You can estimate the maturity amount based on the tenure, amount, and RD or FD interest rates. Using an FD calculator or RD calculator, you may conveniently plan your investments ahead of time and keep on pace to meet your financial objectives.

3. Early Withdrawal

A Fixed Deposit or Recurring Deposit can be withdrawn before maturity. However, you will be penalized if you withdraw your FD or RD early. With consecutive withdrawals, the penalty amount may escalate.

4. Credit Facility

The ability to borrow against fixed and recurring deposits is another feature they share. The funds withdrawn may be used for any purpose. However, the loan amount differs from bank to bank.

Which One is Right for You: FD or RD?

You may be asking if you should invest in a fixed or recurring deposit at this stage. Here’s how you can decide and make your choice.

Fixed deposits are suitable if you have a large sum of money to be invested in one single sum. YOU CAN EARN MORE because FD interest rates are typically greater than RD interest rates, therefore, you can invest in a cumulative FD, which earns compound interest.

On the other hand, recurring deposits are perfect if you have a sizable surplus income, such as Rs. 1000, that you can invest each month. You can continue to deposit a tiny fixed sum each month. The returns will be credited to your account on maturity.

To Sum Up: Two of the most popular financial vehicles among risk-averse investors are fixed deposits and recurring deposits. The main benefit of investing in one of these plans is that the returns are fixed. Because both schemes are relatively similar, many consumers become perplexed while determining whether to invest in a Fixed Deposit or a Recurring Deposit.

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