FD vs RD: Difference Between Fixed Deposit and Recurring Deposit

Fixed Deposits (FDs) and Recurring Deposits (RDs) are both low-risk investment options that give assured returns. In this blog post, let us learn more about them and compare their similarities and differences.

What is a Fixed Deposit (FD)?

FD is a financial product where you deposit a lump sum amount for a fixed tenure at a pre-decided interest rate. You earn interest on your invested funds at that rate for a fixed period of time until the FD matures. You can choose from various tenures, ranging from 7 days to 10 years, based on your needs and financial plans. Conservative investors of all ages prefer FDs because of their low risk and favourable returns.

What are the key features of Fixed Deposits?

• Assured returns: You earn interest at a fixed rate throughout the tenure

• Flexible tenures: The tenure ranges from 7 days to 10 years

• Low risk: FD is a very safe investment option that comes with capital protection

• Payout options: Interest can be received monthly, quarterly or at maturity.

• Loan facility: You can apply for a loan against your FD, which can be used to cover urgent / important expenses without breaking the FD

• Tax-saving option: Banks also allow you to choose a 5-year Tax-Saving FD

• Premature withdrawal: You can make a partial withdrawal from your FD, but it comes with a certain penalty.

What is a Recurring Deposit?

Recurring Deposit (RD) is a savings scheme where you invest a fixed amount every month for a specified tenure and earn interest on the invested amount. The amount is invested monthly and you get the full invested amount plus interest once the RD reaches its tenure. RDs offer assured returns, making them perfect for short- to medium-term goals like travel, education or creating an emergency fund.

What are the key features of Recurring Deposits?

• Monthly Investment: You need to deposit a fixed sum every month

• Fixed Returns: You earn interest at fixed rates similar to those of FDs

• Flexible Tenure: You can choose a tenure from 6 months to 10 years

• Safe and Secure: RDs are low-risk investments with favourable returns

• Premature Withdrawal: You can prematurely withdraw from the RD, but it comes with reduced interest and penalties.

Similarities Between FD and RD

• Both FDs and RDs can be used as collateral for availing loans

• Both require you to provide a nominee to be the beneficiary of your eventual income in the event of your demise

• Interest income generated by both is taxable under Income Tax laws

• Both are low-risk and offer assured returns

• An early withdrawal from both FD and RD typically invite a penalty.

Difference between FD and RD

Here are the key differences between FD and RD:

Therefore, we can see that while both serve as excellent savings options, Fixed Deposits tend to edge out with greater benefits. Fixed Deposit accounts offer more flexibility with their range of tenure, provide higher returns and are ideal for anyone seeking to invest any amount of money for a given period of time.

Conclusion

Fixed Deposit accounts are often the difference between storing idle money and reaping handsome, monetary rewards. So, if you are on the lookout for the most flexible and profitable Fixed Deposit account in the market, you can use ICICI Bank’s Fixed Deposit calculator to determine the principal amount, tenure and interest rates perfect for you. Choose from a tenure ranging from 7 days to 10 years, and watch your money grow with guaranteed returns and without any market risks.

FAQs

1. Who can invest in an RD?

Anyone who can invest on a regular basis can invest in an RD. This includes salaried individuals, professionals, senior citizens and even minors (through guardians). It's ideal for those who want to build savings gradually, with fixed monthly deposits over a chosen period.

2. Who should invest in an FD?

FDs are ideal for conservative investors looking for capital safety and assured returns. These are ideal for retirees, risk-averse individuals and anyone with a lump sum amount available for investing. FDs help in preserving wealth while earning steady interest.

3. Are FD and RD interest rates the same?

FD and RD interest rates are usually similar but might slightly differ depending on the bank’s rules and the tenure. Both offer fixed returns, but FDs can have higher rates for longer tenures or larger amounts. 

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