Are Fixed Deposits Better Than Recurring Deposits?

Investors often get confused between fixed deposits and recurring deposits; because of both offer considerably higher returns when compared with any other risk-free instruments such as savings accounts. As an investor, you can easily be confused about which to choose when.

When it comes to comparisons between the two, fixed deposits yield higher returns than recurring deposits. Investors need to understand the features of both to understand the significance of one instrument over the other in their portfolio.

Features of Fixed Deposits:

  • Fixed deposits are a one-time lump sum, a risk-free investment that can be availed from any bank or other financial institutions offering time deposits.  
  • Fixed deposits may yield high returns with a flexible maturity period ranging from 7 days to 10 years.
  • Though being taxable, there are measures to receive tax rebates such as by filing 15G and 15H forms.  
  • Apart from this, fixed deposits come with a number of schemes like regular FDs, Senior Citizen FDs and Tax-saver FDs (that comes with 5-year lock-in an exemption up to Rs 1.5 lakhs).
  • Each of these schemes can be chosen with the cumulative option in which interest can’t be paid out before maturity while in non-cumulative schemes you can seek payment before maturity.
  • With Bajaj Finance FDs, you can avail of a high-interest rate of 8.75% for regular customers with extra 0.35% for senior citizens and a bonus of 0.25% on every renewal.
Fixed Deposit Vs Recurring Deposit

Features of Recurring Deposits:

Recurring deposits help you to develop a regular saving habit and grow your corpus by saving a set amount every month without any payout till the maturity. Thus, you receive an accumulated deposit sum with interest upon maturity.

Fixed deposits vs. Recurring Deposits- Which is better?:

Here is the comparison between the FD vs. RD:

1. Purpose:

Fixed deposits and recurring deposits are financial instruments that can enhance your wealth with a fixed rate of return on your investments.

FDs enable you to utilize your idle cash for a specified period of time while a recurring deposit inculcates a habit of saving by virtue of monthly investments.

2. Duration:

The rate of interest varies with the term of maturity. You can invest in FDs for a period ranging from 7 days to 10 years.  In the case of RDs, investment term ranges from 6 months to 10 years.

3. The rate of interest:

Fixed deposits offer higher interest rates as compared to recurring deposits because, in case of fixed deposits, you earn interest every month for the lump sum investment.

In the case of recurring deposits, the deposit amount is invested periodically, say monthly. Therefore, only the first installment earns interest for the entire term. The investment tenor for each subsequent deposits gets reduced, and hence the interest amount gets reduced.

4. Tax:

Interest earned on FDs and RDs is taxable if it exceeds the limit of Rs 40,000 (as per Interim Budget, 2019). It is taxable at the rate of 10% TDS if the PAN number is linked to the account else 20%. Apart from this, customers who are not eligible for TDS can file the 15G or 15H form for a tax rebate.

5. Eligibility:

All Indian residents, including HUF, are eligible to open fixed deposit accounts. Whereas all Indian residents, including HUF and minors (via their parents), can open recurring deposit accounts.

Comparatively, FDs are better investment instruments as compared to recurring deposits as they offer flexibility in investment terms and good returns. You can look to invest in a high-yielding fixed deposit with a minimum of Rs 25,000 in a Bajaj Finance Fixed Deposit and use the cumulative option to build a substantial corpus over a period of time. You can also use the online FD calculator to check your earnings. With FAAA/Stable rating from CRISIL and MAAA/Stable rating from ICRA, these deposits offer a high level of safety for your investments.