What is an FD?
An FD, or fixed deposit, is one of the most popular investment options in India as it’s risk-free and offers guaranteed returns. An FD is an investment instrument wherein you can deposit a lump sum amount into a bank or NBFC offering FD facilities, for a stipulated period of time at a fixed rate of return. Additionally, you may also choose between monthly, quarterly, yearly or lump sum interest payouts depending on your financial goals.
When you open an FD account at a specified rate of return, the specified interest rate is guaranteed, irrespective of any changes that may occur due to market fluctuations. Currently, FD returns can range anywhere from 2.50% to 8.25% p.a depending on your investment time horizon, age, investment amount and bank/NBFC.
An FD is offered by many, if not all banks and NBFCs in India. There are a number of types of FDs that you can choose from, including standard FDs, tax-saving, cumulative and non-cumulative FDs, senior citizens’ FD and flexi FDs.
FDs are highly preferred because they come with a number of advantages such as easy application process, good and assured FD returns, freedom to choose the investment time period, etc. Apart from this, FDs also come with an income tax savings option that is a great choice for anyone looking to save up on income taxes. With FD returns growing consistently, this is surely a wise investment decision.
What is an RD?
An RD, also known as recurring deposit, is a unique term-deposit option offered by Indian banks and NBFCs. RD is an investment option that lets you invest a specified amount of money in monthly installments. Much like with an FD, you can pick your preferred tenor and your return on investment is guaranteed. Your chosen investment time period can range anywhere from 6 months to 10 years, depending on your financial goals and priorities.
Generally, your interest is paid to you over your funds and is compounded quarterly, this ensures that you can take maximum advantage of the power of compounding. At the time of maturity of your RD, you will receive your initial investment amount along with the interests earned on them over the investment period. The minimum RD investment amount will vary depending on your bank/NBFC, however, with most institutions, you can start with a sum as low as ₹1000. The return on investment for RD is very similar to FD returns, making it a wise investment choice.
The Differences - FD vs RD
Both FDs and RDs are great investment options. However, determining which of the two is the best choice for you might be a little tricky, which is why it’s crucial that you do a thorough FD vs RD analysis to help you pick the best investment choice for you. There are substantial differences between the two, it’s crucial that you take into account these differences before making an investment decision.
An FD is ideal for anyone that has lump sum money lying around that they would like to invest in return for good, predictable and consistent FD returns. FDs also have other benefits such as shorter investment time horizons - with an FD, you can make investments for time periods as short as 7 days to 6 months, making it an ideal choice for anyone looking to make short-term risk-free investments.
On the other hand, if you’re a salaried professional or anyone looking to make smaller investments in monthly installments, RDs might be the perfect choice for you. Investing in an RD will help you develop a saving and investing habit with a low initial investment amount. With an RD, you can start with a sum as low as ₹1000 and for an investment period of just 6 months.
Here’s a table showing a comprehensive FD vs RD analysis to help you determine which is the best investment for you:
Conclusion
Both FDs and RDs are great investment and savings instruments, however, before making any investment decision, kindly exercise due diligence by making a thorough FD vs RD comparison and taking into account prevailing RD and FD returns.
Published - October 21, 2022 03:25 pm IST
