Among the many financial options available in India, Term Deposits have been a popular choice among investors. They are considered secure, convenient to open and handle, and offer assured returns to depositors. Several banks and financial institutions offer Term Deposits, which are available in two types: Fixed and Recurring Deposits.
What is an FD?
An FD refers to a Term Deposit offered by banks that enable depositors to save and invest a lumpsum amount. The bank locks away the sum for a fixed tenure, and the customer receives interest payments at maturity, quarterly or monthly, depending on the type they have chosen. The interest earned is based on the rate decided by the bank and remains fixed during the deposit term.
What is an RD?
An RD allows depositors to invest a fixed sum regularly and save according to their convenience. The bank locks away the deposited amount for a fixed tenure and pays interest on the principal sum at a fixed rate decided by them.
Key differences
Today, opening an FD and RD is easy, and you can conveniently open any using the Banking app. The process is quick, paperless, and hassle-free. Additionally, you can avail of a Term Deposit anywhere and anytime. However, if you face a tough time choosing, here are crucial differences between the two:
Investment frequency
With FDs, customers can invest a significant amount in one go. Hence, this deposit is ideal for investors with a lumpsum amount lying idle that they want to grow. Alternatively, an RD lets depositors invest a small sum at fixed intervals. You can make the deposits to your RD Account every month, quarter, or half-year. Hence, it is typically considered a better investment option for those with a steady and regular source of income.
A Recurring Deposit also helps investors develop a saving habit and enables them to save for a goal.
Investment sum
Based on the financial institution you opt for, you can start your RD with an amount as low as Rs. 100. Conversely, the minimum investment for an FD is usually Rs. 5,000.
Deposit Tenure
You can invest in an FD with a tenure as short as seven days up to a maximum of 10 years. On the other hand, you can invest in an RD for a term that varies between 91 days and 10 years.
Interest rates
The respective banks decide the interest rates on an FD and RD. These rates also vary according to your investment amount and term. With a Fixed Deposit, the interest can be paid to the depositor monthly, quarterly, or at maturity, depending on the FD they choose. However, for an RD, the interest is only paid to the investor at the end of its term.
