Articles

Difference Between Fixed And Recurring Deposits

by sakshi kharbanda Financial Advisor


Difference Between Fixed And Recurring Deposits

If you look for the most popular risk-free investments, then only fixed or recurring deposits come in your mind. Fixed Deposit and recurring deposits provide the fixed return over a specific tenure without any risk of market fluctuations. In the case of Fixed Deposits Interest Rates, it will get credited every month, on the other hand, in case of a recurring deposit, interest is paid on maturity along with the capital amount. Being the safest option as compared to equities, fixed and recurring deposits are not linked with the market and have a fixed interest rate.

Every major bank or financial institution provides these deposits. Both types of deposits have almost the same procedure. In both the accounts, you receive interest and the principal amount in the end. This creates a dilemma for investors to choose an investment scheme. As both the schemes have both safety and fixed returns, so this attracts the customer easily. When compared these two deposits, the fixed deposits seem to be more profitable. The reasons for which one is better is given below:


Recurring Deposit vs. Fixed Deposit

Before investing in any of the investment tools given above, you must research both the schemes as they have a primary difference between each other, which is that in recurring deposits, you can invest at different intervals of time whereas in the fixed deposit you deposit just once.


Fixed Deposit

Tenure of the deposit can be chosen by an individual, which ranges between 7 days- 10 years, but it has to be deposited only once. However, the interest can be credited either monthly or quarterly in your account.


Recurring Deposit

Tenure of the deposit can be chosen by an individual, which ranges between 1 year - 10 years, which depends on your financial institution. In this scheme, you can deposit monthly and earn interest on that amount, which can be paid along with the maturity of your amount too. The interest rate in a recurring deposit remains the same throughout the year. Interest rates can be easily calculated through a recurring deposit calculator, which is easily accessible online.


Features of FD and RD


These fixed investment schemes are available both in financial institutions and all the major banks. Over a specified time, banks credit your interest earned in your account. When your tenure is finished, you will receive the total amount, including principal amount and accumulated interest. Under the Income Tax Act,1961, TDS is deducted from both the schemes. The amount received on maturity is taxed on your annual income tax rate. For example, 30% of the tax will be deducted if we fall under the slab of 30%. TDS is only deducted when you cross the limit of Rs.40,000 on your interest income per year on both deposit schemes. As per Section 80C of the Income Tax Act, 1961, if the deposited amount is above Rs. 1.5 lakh, then tax can be deducted. 

Fixed Deposit v/s Recurring Deposit – Which one is more profitable?

When compared, a fixed deposit helps you to earn more. 

In the table below, we have shown you an example to prove which type of scheme earns you more.

   Tenure

Fixed Deposit Amount (a)

Interest Earned on FD (7.2%) (b)

FD Maturity Amount (c)

Recurring Deposit Amount p.m. (d)

Interest Earned on RD (7.2%) (e)

RD Maturity Amount (f)

Difference (c-f)

1 Year

Rs 24000

Rs 1786

Rs 25786

Rs 2000

Rs 957

Rs 24957

Rs 829

2 Years

Rs 48000

Rs 7410

Rs 55410

Rs 2000

Rs 3771

Rs 51771

Rs 3639

3 Years

Rs 72000

Rs 17301

Rs 89301

Rs 2000

Rs 8581

Rs 80581

Rs 8720

4 Years

Rs 96000

Rs 31930

Rs 127930

Rs 2000

Rs 15535

Rs 111535

Rs 16395

5 Years

Rs 120000

Rs 51814

Rs 171814

Rs 2000

Rs 24793

Rs 144793

Rs 27021

Assuming the interest rate as 7.2%

The table clearly states that on the maturity of your account, you earn more amount of interest in a fixed deposit than a recurring deposit.

The major reason for the more interest earned on a fixed deposit is that here interest is calculated over twelve months on a specific amount. Whereas in recurring amount, the interest calculated reduces the time period monthly, like first calculated on 12 months then on 11 months and so on. To calculate these amounts easily, you can use several deposit calculators that are easily accessible online.

Conclusion

Investments can be made even with the small amounts of monthly salary by choosing a recurring deposit. Still, if you want to invest a good amount, then a fixed deposit is the right choice as both of them are risk-free!



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About sakshi kharbanda Junior   Financial Advisor

2 connections, 0 recommendations, 13 honor points.
Joined APSense since, August 23rd, 2019, From Gurgaon, India.

Created on Oct 14th 2019 05:27. Viewed 484 times.

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