Money handling is an art and only few can master it. If you have cash balance, then there are 02 best secured ways to increase your saving – Fixed deposit and Recurring deposit. The importance of savings has long been debated and various banks have come up with lucrative schemes for saving money. People often have very little knowledge about the hidden clauses and the basic differences between them which leave them confused. Thus it becomes very crucial for everyone to first understand the basic differences between the various saving options.
In this article I will discuss the basic and very common saving schemes – Fixed Deposit and Recurring Deposit. The differences are tabulated for better understanding, have a look:
Fixed Deposit vs Recuring Deposit – Which is better investment option
|Fixed Deposit||Recurring Deposit|
Schemes where idle money can be invested in banks for a higher rate of interest than regular savings, until the final maturity date.
|Basically adopted for investing in installments.|
|2. Mode||A specific sum of money is kept with the bank for a fixed period of time. It is a lump sum mode of saving. Once its fixed then you won’t have to invest again.||For recurring account, money is pooled in at regular or periodical intervals which are stipulated by the bank at the time of opening the account. It is an installment based saving scheme.|
|3. Eligibility||Any Indian resident with Indian citizenship as well as the members of the Hindu Undivided Families (HUFs) are eligible for this scheme.||Apart from Indian citizens, the scheme is also open for minors. The parent or guardians need to open an account for their child.|
|4. Duration||For fixed deposit, the investment term generally ranges from a week to maximum of 10 years.||The general time period for RD ranges from a minimum of six months to a maximum of ten years.|
|5. Minimum amount to be deposited||The amount varies with different banks but is slightly higher than RD deposits.||RD amount also varies with bank and the range is lower and flexible than FDs.|
|6. Interest Calculations||Interest works on compounding basis. Compound interest is calculated on the interest accrued every year.
|Compounding of interest generally occurs on every quarter for RDs.
|7. Returns||Returns made by FDs are higher as the account compounds the interest obtained. If you wanted to check the exact returns then you can use fixed deposit calculator that will give you exact return figure.||For Recurrent Deposit, the first installment accrues for a period of twelve months, the next one for a month less, i.e., eleven months, the third one for 10 months and so on till the completion of term. Thus the final amount is lesser than the fixed deposit returns.|
|8. Withdrawals||Withdrawals are not allowed but in case of emergency, the amount can be withdrawn which are subject to penalties penned down by various banks. Any amount less than 20,000 can be taken cash. If more the bank transfer needs to be done. For tax saving schemes, pre-term withdrawals are not allowed for atleast five years.||A penalty is charged for premature withdrawal. Generally it is a lowered interest rate i.e. one percent. Partial withdrawals are not allowed, but many banks offer loan services which runs collateral to the RD.|
|9. Advantage||FDs generally fetches one high returns on investment and is a good way of managing money.||RDs also is a good instrument for gaining decent amount of returns, but chiefly is adopted to inculcate a habit of regular saving.|
- Nominee, Tax and Loan :
Nominations, tax and loan are more or less the same for Fixed deposit and Recurring Deposit. The nominee or the person who receives the amount accrued till maturity after the depositor’s death, needs to provide valid identity and FD claim proof. Only one nominee per account is allowed for both the saving schemes. Loans of almost 90% of the saving amount are available as collateral for both FD and RD. Tax is applicable for both the schemes and is as per depositors tax slab.
Now that you have been enlightened on the basic differences between a Fixed Deposit and a Recurring Deposit. However if you have enough time to wait for the maturity period then FD can provide slightly higher return as compared to RD. Now, it is up to your judgement and requirement to engage in these valuable money investment schemes.