Which Is Beneficial: Recurring Or Fixed Deposits?

India has long been a country that prioritises saving overspending. Therefore, most of us are aware of Fixed Deposit and Recurring Deposit concepts, mainly because they are two of the most preferred investment options. Let us look at some of the reasons why they are so beneficial.

FDs and RDs: Traditional investment opportunities

Traditional investing options such as fixed deposits and recurring deposits have been popular for years. Many modern investors put money into FD and RD regularly to offset the risks associated with sophisticated, market-linked instruments.

An investor can put aside some money into the FD for a specific time at a set interest rate. However, if you withdraw money before the minimum lock-in period gets completed, banks levy a penalty.

Monthly, quarterly, half-yearly, or annually, the interest gets either accumulated and added to the amount of the fixed deposit account or deposited to the investor's savings account. At the end of the investment term, the investor's collected interest is given to the principal sum of the FD.

You can make use of a fixed deposit calculator to know your maturity amount before investing. These are available on the banking apps too. On the other hand, a recurring deposit is a monthly investment of a defined amount at predetermined interest rates. The interest and maturity proceeds get credited in the same way as an FD.

If the interest amount for a financial year exceeds Rs. 10,000, the bank deducts a Tax Deduction at Source for both. Here, you can use a recurring deposit calculator to know what the maturity amount will be. So, you might wonder how an FD differs from RD.

Higher returns in FD

When an FD and recurring deposit are co pared, the former's maturity proceeds are likely to be higher. It is because the FD requires you to invest the entire amount at one go. As a result, the interest gets computed on a bigger sum, and the maturity proceeds end up being bigger due to compounding effects.

On the other hand, the RD account allows you to invest a set amount of money monthly. As a result, while the first instalment receives interest for the whole 12-month period, the second instalment only earns interest for the first 11 months. As a result, the interest earned here is lower than the FDs.

More flexibility in RD

FDs are the best option for you if you have significant money to invest. On the other hand, RDs are a great choice if you want to develop a safe pool of assets. In addition, with consistent monthly commitment, you can set specific, short-term goals, such as paying annual school fees or saving for a major family event.

What Should You Know About Recurring Deposit

Recurring deposit schemes provided by banks are favourite investment choices for many people. Working people, as well as people with smaller incomes, choose RDs as their investment option. Under this scheme, a person must invest a specified sum of money for a fixed period each month and receive interest on their investment. Upon maturity of the RD, the principal sum is returned along with interest.

RD schemes are usually more flexible than FD schemes, which often benefit those who choose to set up an account to save money and build an emergency fund.

How is interest determined for recurring deposit?

To learn more about your investment, use the recurring deposit calculator

For most banks, interest for RD is calculated annually. The formula is:

M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )

In this,

M is the Maturity value

R is Monthly Instalment

N is Number of quarters

I is Rate of interest/400

Here are some details you need to know about Recurring Deposits:

• The minimum amount of investment required to be deposited each month in an RD scheme is as small as the INR 1000. This is a massive attraction for low-income individuals and wage-earners.
• Since the investor has to spend a portion of his income regularly, inculcating the saving habit is very beneficial.
• Payment may be made directly to one's RD account via the Savings or Current Account.
• You can connect an RD account to your Savings account. Hence it does not require any documentation work in these cases.
• Unlike fixed deposit schemes, where a lump sum amount is to be invested at once, Recurring Deposit does not drain the investor.
• Recurring deposits are the best investment option, especially for those planning to handle short-term financial circumstances such as financing money for a dream holiday or wedding, higher education costs etc. RD interest calculator can help you plan well.
• Most banks allow for the opening of recurring deposits in the name of minor children with the parent or legal guardian holding a joint account. This helps to build investments for future use of the minor.
• Most banks provide loan facility on the recurring deposit amount. This loan is granted up to 95 per cent of the recurring amount of deposit. You can get it in case of any emergency.

To help plan your monthly investment in a recurring deposit, it is advisable to take the help of an RD calculator to plan your investments.

You will find this instrument on your digital banking app as well. This way, banking is on your fingers.