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.
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