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What is the Difference Between RD and FD?

Long Term Investment

RD and FD are wise investment options devoid of any risk per se, but there is a stark difference. Some people cannot afford to invest a lump sum amount in an FD; what should they do? Should they never think of investing at all? It is where the importance of FD vs. RD is quite discernible. 

People who want to invest yet do not have the adequate funds for a lump sum deposit can go forward with investing in a recurring deposit scheme. Talking of FD vs. RD, undoubtedly gives you get a better FD return, but you have to have the ability to deposit a lump sum amount; else, it makes no sense whatsoever.

Let us discuss the primary differences when the focal point is FD vs. RD. This blog will clarify the doubts of those who are confused about whether investing in FD is judicious or RD is more rewarding.

Recurring deposit (RD): To put it plainly, if you are running short of a lump-sum amount, then it is wise to choose a recurring deposit scheme to invest your money. You will have the chance to invest every month systematically. Once the RD tenure comes to an end, the matured sum will be deposited into your savings or current account. The RD interest rate ranges somewhere between 5% to 5.40% for general citizens, and for senior citizens, the rate is a little on the higher side, i.e., 5.50% to 6.20% (the current interest rate on RD scheme at SBI).

However, the rate varies from bank to bank. People who have a regular source of income can choose this scheme freely. The flexibility of the RD scheme is beyond comparison as if you deem fit, you can invest even 10 INR (post office RD), supposing you do not have much in hand to invest. The interest is compounded on the principal amount at a quarterly interval.

However, there are a few terms and conditions that apply. You cannot withdraw your money anytime you like. There is a definite lock-in period, and if you wish to withdraw your money before the completion of the RD tenure, a certain amount of penalty will be levied upon you. After that, you can permanently close your RD scheme.

The RD investment tenure ranges between 6 months to 10 years so, it is a great way to save and build your corpus steadily. Under this scheme, anybody can open an account; even children can have an account, but with assistance from parents. Having an RD account means you can receive loans against the account with a loan to value ratio of 80-90%.

Fixed Deposit (FD): It is ideal for people who have a lump sum amount to spare. Choosing an FD scheme is rewarding owing to the fact that it yields more returns on the principal amount. You can watch the magic of compounding happen on your principal amount. Since the principal amount is enormous, you will receive handsome returns monthly, quarterly, half-yearly, or annually. FD schemes have a specific lock-in period with a consistent yield of returns.

The interest rate is better for senior citizens and is absolutely risk-free. You will not be allowed to withdraw the money within the lock-in period. In case you are looking for a premature withdrawal of your FD amount, you will be penalized, following which the account will be permanently closed. Each bank has its different types of FD schemes. However, the broad classifications are non-cumulative and cumulative FD schemes. Cumulative FD yields a better return, so if you can afford to deposit a lump-sum amount, then it is better to choose that will continuously yield a handsome return.

FD vs. RD

Speaking of FD vs. RD, both are good investment options, and none have any tax redemption on the interest amount. The amount of tax depends on the IT slab of the account holder. But, RD is meant for people looking for more affordable investment options, while FD is meant for people who can spare lakhs at a time. However, speaking of safety, both FD and RD are incredibly safe and yield a high return. 

Author Bio:

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Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at Highlight Story.