Difference Between RD and FD

Are you planning on investing your hard-earned money? Do you want to get good returns and also want to make sure that the risk involved is less? If yes, then you are in for a rough ride because there are so many investment options currently available in the market. And the most common investment options are FD and RD.

If you want to make the right choice between an FD and RD, then you need to understand the difference between RD and FD. And we will help you with the same thing today. By the end of this article, you won’t just be able to understand the difference between RD and FD but you will also know what investment option suits you the best.

What is the Difference Between RD and FD?

RD is also known as Recurring Deposits and FD is known as Fixed Deposits. Both of these options are selected by millions of individuals every single year for locking in their money and getting good returns.

One of the biggest advantages of investing in an FD or RD is that both of these investment options are risk-free. This means that the investors will get an assured amount at the time of maturity. This is very different from equity investments that are dictated by the terms of the market.

Irrespective of the difference between RD and FD, the fact remains that both these investment options are secure, flexible, and come with competitive interest rates. These features make FD and RD schemes good options for everyone irrespective of their age, occupation, and gender.

The Features of Fixed Deposits and Recurring Deposits

Till now, we have given you a brief understanding of FD and RD. However, we are a long way from done. There are many things you need to know about these investment options before you can make a decision regarding which scheme is best for you and will get you better returns.

For now, let’s understand the difference between RD and FD by looking at the features of both investment options.

• Both FDs and RDs are fixed income products. This means that the bank or the financial institution will pay the investor a fixed rate of interest on the funds that have been invested
• In both FD and RD, the frequency of the interest payments can vary from monthly payouts to quarterly payouts. Further, the interest payment is added to the principal amount and can be withdrawn at the time of maturity
• The interest rate stays the same throughout the period of the FD or RD scheme
• It is always recommended that fixed deposits and recurring deposits should not be withdrawn prematurely. However, if you must withdraw the money for an urgent reason or for a better investment opportunity, then a penalty will be levied on the deposits
• The interest income of FD and RD is subject to the tax according to the tax slab of the depositor
• Both FDs and RDs can be used as collateral by the investors. This can be done when an individual wants to get a loan from the bank. Banks usually provide up to 90% of the RD and FD amount as a loan
• In both FDs and RDs, the depositor will be required to provide a nominee. This nominee will be the beneficiary of the funds in the event of the primary depositor’s death

The Difference Between RD and FD: What Will Help You Earn More?

The difference between RD and FD is not vast but one thing that you will notice when you are learning about both of these investment options is that they have their own advantages. What we mean by this is that an FD is a good option for someone who has a lump sum amount to invest. But if one does not have that lump sum amount, then investing in an RD is a good option.

Further, you might be interested to learn that FD schemes are more profitable than RD schemes. To understand this in a better manner, let’s take an example. If an individual invests INR 36,000 in an FD for a year at an interest rate of 7%, then at the end of the year, he or she will get INR 2,602 as interest earned value.

At the same time, if there is another individual who opens an RD account for 12 months and invests INR 3,000 every month, then he or she will get an interest earned value of INR 1,395 at the end of the year. The entire reason behind this is that in an FD, the interest is calculated for the entire amount. However, in an RD, the interest is calculated at INR 3,000 for 12 months.

Because of all this, investing in an FD scheme is beneficial for individuals who have a lump sum value to invest. However, if that is not the case with you, then the best option is to invest in an RD scheme.