FD Vs RD – Difference Between Them & Which is the Better

This article compares RD and FD investment options, exploring the differences in terms of benefits, risks, and returns to help readers make informed investment decisions.

FD Vs RD – When it comes to investment options, many individuals often need help deciding between opting for a fixed deposit (FD) or a recurring deposit (RD). Both investment options have unique features and advantages, making it challenging for many individuals to choose. 

In this article, we will discuss which is better, RD or FD, by comparing the features of both investment options.

FD Vs RD: A Comparative Difference Between FD and RD

Parameters	Fixed Deposit	Recurring Deposit
When to Deposit Amount	Lump sum in one go	Every month
Who can Open	Anyone with a bank account	Person with a regular source of income
Amount to be Deposited	*Different banks have different rules *You can start a fixed deposit (FD) with Paytm Payments Bank by putting in as little as ₹100.	Particularly ₹500
Tenure	7 days to 10 years The Bank lets you take out your money from fixed deposits (FDs) whenever you want, even on the same day you put it in.  The extra money you get can change depending on how many days you keep your money there.	6 months to 10 years and beyond
Types	Cumulative fixed deposit Non-cumulative fixed deposit Bank deposits Company deposits Senior citizen FD NRIs FDs Regular FDs Standard FDs Tax saving FDs	Regular recurring deposit account Recurring deposit account for NRI Recurring deposit account for minors Recurring deposit accounts for senior citizens

FD vs RD – Which is Better?

For individuals with limited funds available for investment but the ability to save a portion of their monthly income, a recurring deposit (RD) can be a suitable option. This investment avenue is particularly attractive for risk-averse individuals in lower tax brackets. To determine the most appropriate option based on your investment amount, online calculators can be utilised. While it is important to note that no investment solution is universally perfect, recurring deposits (RDs) are favoured by many due to their affordability and ability to offer returns comparable to fixed deposits (FDs).

What is an RD Account?

A recurring deposit, also called RD, is given to people who have money coming in regularly. It’s a form of SIP investment with no risk. The bank gives them extra money as interest and an easy way to invest: 

• To have a recurring deposit account, you need to put in a certain amount of money every month for a certain time
• You can develop the habit of saving money with the aid of these accounts
• You can choose to keep the account for a short time, medium time, or long time, and the extra money you get might be different depending on how long you keep it
• Banks have different kinds of recurring deposit accounts for different people, like kids, older people, and people who live outside of India. They might give different amounts of extra money
• The way to start a recurring deposit account might be different depending on the bank
• You can close a recurring deposit account, but you might have to pay a fine.

What are the Features of an RD Account? 

• You may need at least around ₹500 per month to start a recurring deposit account, but different banks might have different amounts
• The smallest amount of time you can keep your money in a recurring deposit account is usually six months, and the longest is 10 years
• Some people can have more than one recurring deposit account if they want
• If their parents or another adult who looks after them assist, children can establish recurring deposit accounts
• In most cases, you cannot withdraw certain funds from a recurring deposit account
• Some banks might let you automatically take a set amount of money from your account every month for the recurring deposit, so you don’t have to do it yourself
• Older people might get more extra money on their recurring deposit accounts
• If you take out money from a recurring deposit account before the time is up, you might have to pay a fine
• Usually, you have to put in the same amount of money every month, not all at once.

What are the Types of RD Accounts?

Types of Recurring Deposit Accounts	Meaning
Regular Recurring Deposit Account	People who are older than 18 and have money coming in regularly can do this. Compared to other places where you might invest your money, you receive more money as interest. They decide how much extra money you get based on how long you want to keep your money there and how much money you put in.
Recurring Deposit Account for Minors	Kids who are younger than 18 can participate  The account can be opened by the guardian or the parents of the kid
Recurring Deposit Account for NRI	For NRIs Banks offer a good interest rate on such types of RDs
Recurring Deposit Accounts for Senior Citizens	For Senior Citizens Banks offer higher interest rates

How to Open an RD Account Online?

• Open the bank’s app on your phone
• Look for options saying  you can start a recurring deposit account, like in the parts about saving or investing money
• Type in how much money you want to put in every month and choose how long you want to keep it there. Also, pick the kind of recurring deposit account you want
• Choose the day of the month you want to put the money in
• Click a button that says something like ‘Go ahead’ or ‘Finish’ to finish the whole thing.

How to Open an RD Account Offline?

• Go to your nearby bank
• Talk to a concerned person  and fill out a form to open a recurring deposit account
• Give them all the information they ask for like how much money you want to put in every month, the kind of recurring deposit account you want, how long you want to keep it, and if you want to add a nominee
• In addition to the completed form, give them the cash you wish to deposit
• The bank person will take care of everything and start your recurring deposit account.

What is an FD Account?

A Fixed Deposit (FD) account, also known as a time deposit or term deposit, is a financial instrument offered by banks and other financial institutions. It is a type of investment where an individual or business deposits a specific amount of money for a predetermined period at a fixed interest rate.

In an FD account, the deposited funds are locked in for a fixed duration, which can range from a few months to several years. The interest rate offered on FDs is generally higher than that of regular savings accounts. The interest can be paid out periodically (monthly, quarterly, annually) or at the end of the FD term, depending on the terms and conditions set by the bank.

What are the Key Features of FD?

• When you put money in a fixed account, you have to give all the money at once
• There is no risk and these special accounts will give your money back for sure
• You can choose how often you want to get the extra money – every month, every three months, every year, or at the end
• This special account is not good if you need your money right away
• This special account gives you more extra money than other ways to save your money
• The extra money you get in this special account doesn’t change even if the market changes
• You can’t take your money out before a certain date, but sometimes you can if it’s very important, but you have to pay a little extra
• After your special account is done, you can choose to put the money in a new special account
• There is no maximum amount you can deposit into this particular account.

What are the Types of FD?

Type of Fixed Deposits	Explanation
Cumulative Fixed Deposit	Interest is accrued and available only upon maturity of the Fixed Deposit (FD) account Interval-based interest payments are not applicable for FD account holders Usually it offers a higher interest rate compared to regular savings accounts They are apt for individuals who do not require regular interest payments The tenure of FDs typically ranges from 1 year to 5 years.
Non-Cumulative Fixed Deposit	Interest is paid out at regular intervals during the duration of the Fixed Deposit (FD) The tenure of FDs can range from 1 to 5 years If regular interest payments are chosen, the final amount received at maturity will be lower FDs are suitable for individuals who require a steady income in the form of regular interest payouts.
Bank Deposits	Banks give this to people who have money saved in their accounts The interest you get is not as much as what other companies give.
Company Deposits	Offered by NBFC’s with more interest Mostly apt for companies with more credit worthiness
Senior Citizen FD	For people who are 60 years of age Flexible tenure  Better rate of interest.
NRIs FDs	Available for NRIs, OCI, and PIO individuals with NRO accounts Offers a higher interest rate compared to traditional savings accounts Has a fixed tenure Payments can be made through NEFT/RTGS from the NRO bank account.
Regular FDs	This is a normal way to save money For a predetermined period of time, you can invest your money They give you a set amount of extra money based on the time you keep your money there You get more extra money compared to other ways of saving.
Tax Saving FDs	A common investment option Users can invest a specific amount for a chosen duration It offers a fixed interest rate Provides a high rate of interest.
Standard FDs	Fixed duration or tenure Interest rate is set in advance Tenure options range from 7 days to 10 years Offers higher interest rates compared to savings accounts.

How to Open an FD Account Online?

• Step 1: Open online banking at your bank, log in
• Step 2: Navigate to the section of the website where you can deposit money to be kept secure for a predetermined period of time
• Step 3: Compile a list of all the significant requests they make and send it to them
• Step 4: If you already have an account with the bank and want to put money in FD, you might not have to give them all your information again because they already have it
• Step 5: But if you are starting a new account with a different bank, you need to complete documentation  and a small photo to show them.

How to Open an FD Account Offline?

• Step 1: Visit the bank’s branch to get an application form for a fixed deposit account
• Step 2: Fill out the form with all the necessary information
• Step 3: Submit the completed form to the concerned bank official
• Step 4: Deposit the required amount for the fixed deposit
• Step 5: Collect the deposit receipt as proof of your deposit
• Step 6: Make contact with a bank employee who can help you with the procedure
• Step 7: Ensure that you have all the Know Your Customer (KYC) paperwork
• Step 8: Carry a passport-sized photograph for completing the account opening process.

FD vs RD: Key Differences between Recurring and Fixed Deposits

Let’s compare some key differences between recurring and fixed deposits.

• FD Vs RD: Interest Rates

One of the most important factors individuals considers while choosing an investment option is the interest rate offered. Regarding interest rates, FDs typically offer higher rates than RDs. This is because FDs require individuals to deposit a lump sum of money, and banks can lend this money to other borrowers, earning a higher interest rate. On the other hand, RDs require individuals to make regular deposits, and the bank has limited lending opportunities.

• Flexibility

FD Vs RD – When it comes to flexibility, RDs offer more flexibility than FDs. In an RD, individuals can deposit a fixed amount of money at regular intervals, which is more manageable for many individuals. 

In contrast, FDs require individuals to deposit a lump sum, which can be difficult for individuals with limited savings. Additionally, most banks offer the flexibility to change the amount of the deposit and the duration of the RD.

• FD Vs RD: Maturity and Withdrawal

Another important factor to consider when choosing an investment option is the maturity and withdrawal process. With an FD, the investment matures on a fixed date, and the investor pays the interest. However, an individual must pay a penalty fee if they wish to withdraw the money before the maturity date. 

In contrast, with an RD, the investment matures on completion of the term, and the interest is compounded quarterly. If an individual wishes to withdraw the money before maturity, they will be charged a penalty fee, usually lower than that of an FD.

• Taxation

FD Vs RD – Taxation is an important consideration when choosing an investment option. Both RD and FD investments are taxable under the Income Tax Act. The interest earned on both investments is added to an individual’s total income and taxed accordingly. 

However, tax deducted at source (TDS) is not applicable on RDs if the interest earned is less than ₹ 40,000 per annum. In contrast, TDS is applicable on FDs if the interest earned is more than ₹ 40,000 per annum.

• Risk

FD Vs RD – Risk is another important factor to consider when choosing an investment option. FDs are less risky as they offer a fixed interest rate and protect the principal amount. On the other hand, RDs are considered slightly riskier as the interest rate is subject to change every quarter. Additionally, if an individual cannot make the monthly deposit, the interest rate may remain high, resulting in a lower return.

Conclusion

FD Vs RD – The choice between RD and FD depends on an individual’s financial goals, investment horizon, and risk appetite. FDs are more suitable for individuals with a lump sum of money to invest and looking for a fixed return. On the other hand, RDs are more suitable for individuals who want to invest small amounts of money at regular intervals and are looking for more flexibility.

It’s important to note that RDs and FDs are low-risk investment options, which means they offer lower returns than other high-risk investment options such as stocks and mutual funds. In conclusion, the choice between RD and FD comes from personal preference and financial goals. 

FD Vs RD – Vakilsearch is a legal-tech platform that provides various services to help individuals and businesses with legal and financial matters. In addition to its legal services, Vakilsearch also offers financial tools such as a fixed deposit and RD calculator. These calculators can help individuals make informed decisions about their investment options.

FAQs

What is the tenure for a Fixed Deposit account?

A FD can last for a few months or a number of years. It often ranges from seven days to ten years, depending on what the bank or business decides.

Is it possible to open an RD online?

Yes, You can open a RD online with many banks and financial institutions. Just go to their official website or use their mobile banking app to start the process of opening an RD account.

Who is eligible to open a Fixed Deposit account?

Most people, like residents, non-residents, kids (with parents or guardians guidance), and older folks, can usually open a fixed deposit account. But the exact rules might be different depending on the bank or company you choose.

Can I withdraw RD anytime?

If you take out money from an RD before maturing, you might have to pay extra fees or charges. The specific rules for taking out money early depend on the bank or company where you have the RD.

Will I get interest if I break an RD?

If you take out money from an RD before maturity, you might still get some interest on the money you put in, but it won't be as much as if you had kept it in for the whole time. Each bank has its own way of calculating the interest and the fees they charge if you take it out early.

Is RD a good investment?

Recurring deposits (RDs) are a safe and dependable way to save and invest money. They give you a fixed amount of interest, which is good if you want to save money regularly and be sure of getting back what you put in. However, it's important to know that the interest rates on RDs might not be as high as some other ways you can invest your money.

Is RD withdrawal taxable?

Yes, The money you earn as interest on a recurring deposit (RD) is usually subject to taxes according to the laws of India. The interest you earn is added to the total money you make that is taxable, and it gets taxed at a certain rate set by the government. To get specific details about how taxes work in your area, it's a good idea to talk to a tax professional or look at the local tax rules.

How much interest will I get on an FD?

The amount of interest you get on a fixed deposit (FD) can change based on factors like which bank or company you choose, how long you keep your money in the FD, and how the market is doing. To know how much interest you'll earn for different lengths of time, you can ask your bank or look at their website for the current interest rates.

What is a Recurring Deposit Account?

A Recurring Deposit (RD) account is a type of savings account offered by banks and financial institutions in which individuals can deposit a fixed amount of money at regular intervals, typically on a monthly basis, for a predetermined period. The deposited amount earns interest, and at the end of the maturity period, the depositor receives the principal amount along with the accumulated interest.

What Should You Choose RD or FD?

When deciding between an RD and a Fixed Deposit (FD), there are a few factors to consider: Investment Amount: If you have a lump sum amount that you can invest immediately, an FD might be more suitable. However, if you can only invest a smaller amount periodically, an RD allows you to save and accumulate over time. Flexibility: RDs offer flexibility in terms of deposit amounts since you can choose the monthly instalment at your convenience. On the other hand, FDs require a lump sum investment upfront, and additional deposits cannot be made during the tenure. Interest Rates: Generally, FDs offer higher interest rates compared to RDs, especially for longer tenure deposits. If you have a significant amount to invest and are looking for higher returns, an FD might be more attractive. Liquidity: In terms of liquidity, RDs provide more flexibility as you can prematurely close the account and withdraw the accumulated amount in case of emergencies. FDs, on the other hand, have a fixed tenure, and premature withdrawals may attract penalties or lower interest rates. Goal-oriented savings: If you have a specific financial goal or target in mind, such as a down payment for a house or a child's education fund, an RD can help you save regularly and accumulate the desired amount over the deposit tenure. FDs are better suited for long-term investments where you don't require immediate access to the funds.

Major Differences Between: Recurring Deposit V/s Fixed Deposit

If you have a lump sum amount to invest and are looking for higher interest rates, an FD may be a better choice. On the other hand, if you can save a smaller amount periodically and require flexibility in deposit amounts and withdrawals, an RD would be more suitable for your needs. It's important to assess your financial goals, risk appetite, and liquidity requirements before making a decision between RD and FD.

Helpful Links:

• TDS Payment on Sale of Property
• Complete process on making TCS Online payment?
• Definition of TDS under section 194J