Recurring Deposit Vs. Fixed Deposit Which is better?

Recurring Deposit Vs. Fixed Deposit Which is better?
Recurring Deposit Vs. Fixed Deposit Which is better?

When it comes to the safety of funds, both recurring deposits and fixed deposits attract investors. But Fixed deposits scores higher when compared to the two. Let’s see how both instruments are different from each other. 

What is a Fixed Deposit?

Fixed Deposits:  A fixed deposit is a term deposit where a lump sum amount is deposited with banks or NBFCs for a fixed period at a fixed rate of interest. The lock-in period and the interest rate are decided at the time of opening the FD account. It is known as a no-risk investment.

What is a Recurring Deposit?

Recurring deposit: Recurring deposit is also popular as a risk-free investment where a fixed amount is deposited in a bank or an NBFC monthly. The rate of interest is fixed for the whole tenor.

Also read: What do you need to know about card protection plans in India?

Difference Between Fixed Deposit And Recurring Deposit 

1. Taxability

Both investments are taxable in the hand of investors. The returns earned on both investments will be added to the investor’s income under the head ‘income from other sources’.

2. Returns

A fixed deposit earns more for you than a recurring deposit. For example, if you are investing Rs. 36,000 in a cumulative fixed deposit and Rs.3000 per month in a recurring deposit for a year at the same rate of interest for both (where the rate of interest is compounded quarterly), you will earn returns as explained below:

Fixed Deposit

  • Invested amount: Rs.36,000 lump sum
  • Interest rate: 7.15%
  • Interest payout: Rs. 2,574 at the maturity date
  • Maturity amount after one year: Rs. 38,574

Recurring Deposit

  • Invested amount: Rs.3,000 per month 
  • Interest Rate: 7.15% 
  • Total interest earned yearly: Rs.1418 
  • Maturity Amount after One Year: Rs.37,418 

Here is the difference of Rs.1156. Your RD earns Rs.1156 less than your fixed deposit. You may ask why so. The reason for this difference is that FD requires a lump sum to invest in and the entire amount fetches interest for a whole year. Whereas an RD will fetch interest for 12 months for the first year, for 11 months for the second year, for 10 months for the 3rd year, and so on. Therefore, FD scores high in terms of returns. 

If you invest in Bajaj Finance FD, you can earn high interest rate up to 7.35%.

3. Income Tax saving option 

Tax Saving Fixed deposits enables you to save taxes. But there is no such option available with RD. 

4. Interest Payouts

The interest on an FD gets credited on a monthly/quarterly/half-yearly/yearly as per the choice of the investor. Whereas in the case of FDs, interest is credited on maturity. 

Your affordability will decide the right investment option for you. But, if you have an accumulated amount and want to invest safely at one go, a cumulative fixed deposit should be your preference so that you can optimize your funds by earning more interest. Because, in case of a cumulative FD,  the principal, at which the interest calculated, will increase every year right from the start and the FD interest will be calculated on a higher principal.

In case you want a regular income, the non-cumulative FDs will be better for you as you will receive periodic payouts as per your choice. 

For FD rates comparison, you can check the interest rates with different banks and NBFCs. Bajaj Finance, an NBFC, offers higher rate of returns than banks i.e. up to 7.35%. Bajaj Finance FD is also accredited for its safety and credibility by reputed third party organizations such as CRISIL and ICRA. In addition to high interest earnings, Bajaj Finance FD also offers value-added benefits such as flexibility to choose frequency of periodic interest payouts, flexible tenors, online FD calculator and loan against FD.