Saving money is important for financial stability. Two popular savings tools in India are Fixed Deposits (FDs) and Recurring Deposits (RDs). Both offer safe returns but differ in many ways.
What is a Fixed Deposit?
A Fixed Deposit (FD) is a savings tool where you deposit a lump sum amount with a bank or NBFC for a fixed tenor. The interest rate is fixed for the entire period. FDs offer higher interest rates compared to regular savings accounts. You can choose the tenor from 7 days to 10 years. At the end of the tenor, you get the principal amount along with the interest earned.
What is a Recurring Deposit?
A Recurring Deposit (RD) is a savings tool. You deposit a fixed amount every month for a pre-decided period. The interest rate is fixed at the time of opening the RD. RDs help in building a habit of regular saving. The tenor for RDs usually ranges from 6 months to 10 years. At the end of the tenor, you receive the total amount deposited along with the interest earned.
Interest Rates Comparison
Interest rates for both FDs and RDs are decided by issuers. They depend on various factors like the tenor and the amount deposited. Here is a table comparing current interest rates for FDs and RDs from some issuers:
| Bank/NBFC | FD Interest Rate (p.a.) | RD Interest Rate (p.a.) |
| State Bank of India | 6.00% – 7.50% | 7.25% – 7.50% |
| HDFC Bank | 5.75% – 7.20% | 5.75% – 7.60% |
These rates are subject to change and should be checked on the official websites of the banks and NBFCs.
Benefits of Fixed Deposits
Higher Interest Rates
FDs usually offer higher interest rates compared to savings accounts and RDs.
Fixed Returns
The interest rate is fixed for the entire tenor, providing guaranteed returns.
Flexible Tenor
You can choose the tenor as per your financial goals, ranging from 7 days to 10 years.
Loan Against FD
Banks and NBFCs offer loans against FDs up to 90% of the deposit amount.
Safety of Capital
FDs are considered one of the safest investment options. They are not affected by market fluctuations.
Benefits of Recurring Deposits
Regular Savings
RDs help inculcate a habit of regular saving, as you need to deposit a fixed amount every month.
Fixed Returns
Like FDs, the interest rate is fixed for the entire tenor.
Low Initial Deposit
RDs can be started with a low monthly deposit, making it accessible for everyone.
Loan Against RD
Some banks and NBFCs offer loans against RDs, though the loan amount may be lower compared to FDs.
Ideal for New Savers
RDs are ideal for new savers who want to start saving in a disciplined manner. They do not require a large initial investment.
Differences Between Fixed Deposits and Recurring Deposits
| Feature | Fixed Deposit (FD) | Recurring Deposit (RD) |
| Deposit Type | Lump sum | Monthly |
| Interest Rate | Usually higher than RDs | Generally lower than FDs |
| Tenor | 7 days to 10 years | 6 months to 10 years |
| Loan Facility | Up to 90% of deposit amount | Available but lower amount |
| Withdrawal | Premature withdrawal with penalty | Premature withdrawal with penalty |
| Investment Discipline | Not required | Requires regular monthly deposits |
| Suitable for | Large lump sum investments | Regular small savings |
Tax Implications
Interest earned on both FDs and RDs is taxable under the Income Tax Act, 1961. TDS is deducted if the interest earned exceeds ₹40,000 in a financial year for individuals. For senior citizens, the limit is ₹50,000. It is important to declare the interest income while filing your income tax return. If your total income is below the taxable limit, you can submit Form 15G or 15H to the bank to avoid TDS deduction.
Premature Withdrawal
Both FDs and RDs allow premature withdrawal, but it comes with penalties. The penalty amount varies from bank to bank. For FDs, the penalty is usually 0.5% to 1% of the interest rate. For RDs, banks may deduct 1% from the interest rate applicable to the period for which the RD was held. It is advisable to check the premature withdrawal terms before investing.
Senior Citizens Benefits
Many banks and NBFCs offer higher interest rates for senior citizens on both FDs and RDs. The additional interest rate is usually 0.25% to 0.50% higher than the regular rates. This benefit makes FDs and RDs more attractive for senior citizens. They offer safe and fixed returns.
Special Types of Fixed Deposits
Tax-saving FD
Offers tax benefits under Section 80C of the Income Tax Act, 1961. The maximum investment limit is ₹1.5 lakh per annum, and the lock-in period is 5 years.
Flexi FD
It offers higher liquidity. Linked to your savings account, providing the benefits of both savings and FD. It offers higher liquidity as you can withdraw money from the savings account. You will continue to earn FD interest on the remaining amount.
Floating FD
Floating FD – The interest rate is linked to a benchmark rate and can change during the tenor of the FD. It offers potential higher returns if the benchmark rate increases.
Special Types of Recurring Deposits
Flexible RD
Allows you to vary the monthly deposit amount. It provides flexibility in case of fluctuating income.
NRE RD
Designed for Non-Resident Indians (NRIs). The principal and interest earned are fully repatriable. The interest earned is tax-free in India.
How to Open a Fixed Deposit Online?
Opening a fixed deposit online is easy and convenient. Follow these steps:
Visit the Official Website
Go to the official website of the bank or NBFC.
Login to Your Account
Login to your internet banking account.
Choose Fixed Deposit Option
Navigate to the fixed deposit section and select ‘Open Fixed Deposit Online’.
Fill in the Details
Enter the deposit amount, tenor, and other required details.
Submit the Form
Review and submit the form. The amount will be debited from your account, and the FD will be created.
How to Open a Recurring Deposit?
Opening a recurring deposit is also simple. Follow these steps:
Visit the Official Website
Go to the official website of the bank or NBFC.
Login to Your Account
Login to your internet banking account.
Choose Recurring Deposit Option
Navigate to the recurring deposit section and select ‘Open Recurring Deposit’.
Fill in the Details
Enter the monthly deposit amount, tenor, and other required details.
Submit the Form
Review and submit the form. The monthly deposit will be deducted from your account automatically.
Conclusion
Both Fixed Deposits and Recurring Deposits are excellent savings tools. They cater to different financial needs and goals. If you have a lump sum amount, opt for a Fixed Deposit for higher returns. If you want to save regularly, a Recurring Deposit is a better choice. Evaluate your financial situation and goals. This will help you decide the best savings option for you.
For accurate interest rates and details, refer to the official websites. Always check the information provided by banks and NBFCs. This ensures you have the latest information and make informed decisions.
