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Published 16:00 IST, December 10th 2024

Savings Face-Off: Fixed Deposits vs. Recurring Deposits - Which Is Right for You!

Choosing the right savings tool is important, as the returns and convenience you seek may be found in one, but not the other.

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Savings Face-Off: Fixed Deposits vs. Recurring Deposits - Which Is Right for You!
Savings Face-Off: Fixed Deposits vs. Recurring Deposits - Which Is Right for You! | Image: Republic

New Delhi, India: You work hard to earn money. So, it is natural that you would want a savings instrument that maximises the growth potential of your hard-earned money. Fixed Deposits (FDs) and Recurring Deposits (RDs) are two options you will likely come across in your search for the right savings option.

Choosing the right savings tool is important, as the returns and convenience you seek may be found in one, but not the other. While both FDs and RDs are reliable, they cater to different needs and saving habits.

Let’s explore the difference between fixed deposits and recurring deposits and examine their nuances to understand which is better for you.

What is a Fixed Deposit?  

A fixed deposit is a savings-cum-investment option where you deposit a lump sum amount for a specified tenure. The invested amount earns interest at a fixed rate. You can choose to receive the interest earned on your fixed deposit periodically or reinvest it along with the principal, depending on the type of FD chosen.

Benefits of Investing in Fixed Deposits  

If you are wondering which is better, an FD or an RD, consider the benefits of FDs first:

1. Guaranteed Returns

Perhaps the most important benefit of an FD is the predictable returns it provides. You can enjoy a consistent and predictable return on your investment since the interest rate is fixed for the entire tenure.  

2. Flexible Tenure Options

Whether you want to park your lump sum amount for a few weeks or several years, you have flexible tenure options with FDs to suit your needs.

3. Tax Benefits

Banks provide tax benefits for certain FDs, such as tax-saving fixed deposits. They offer tax deductions under Section 80C of the Income Tax Act.  

4. Loan against FDs Facility

With FDs, you can enjoy financial support without breaking the deposit by taking loans against them.  

5. Risk-Free Investment

FDs are a low-risk option since they are not linked to market ups and downs. Plus, the pre-determined fixed deposit interest rate ensures you have a clear idea of your returns.

What is a Recurring Deposit?  

Now, to better understand fixed deposit vs recurring deposit, let’s look at how the latter works.

A Recurring Deposit (RD) allows you to save a fixed amount regularly on a regular basis for a predetermined period. At the end of the tenure, you receive the total amount you invested at all the intervals along with the interest earned on it. RDs are a disciplined way of saving money over time and are ideal for those who have steady incomes.  

Benefits of Investing in Recurring Deposits  

By investing in an RD, you can reap the following benefits:

1. Regular and Disciplined Savings

With an RD, the bank deducts the fixed amount on a monthly basis. This ensures that a portion of your monthly income is going towards disciplined saving, regardless of your other expenses.

2. Guaranteed Returns

Similar to FDs, recurring deposits offer fixed interest rates. So, here too, you can enjoy predictable returns at maturity.  

3. Small Investment Requirement

One of the major differences between fixed deposits and recurring deposits is that you can opt for the latter with a minimal amount. You can get started with an RD for as little as â‚ą1000 per month.

4. No Market Risk

RDs too are unaffected by market volatility and hence, you can enjoy safe and assured returns with them.

5. Short-Term Goal Alignment

RDs offer tenures ranging from 12 months to 120 months. So, while you can invest in an RD for any purpose, they are perfect for short-term goals or specific objectives like travel, festivals, or gadget purchases.  

Fixed Deposits vs Recurring Deposits - Choosing the Right Option for You  

Wondering if you should go for an FD or an RD and which is better for you? Let the following parameters help you in making the right selection:  

1. Your Investment Style  

If you have surplus funds and are looking to make a one-time lump sum investment, FDs are the right option. On the other hand, RDs are ideal if you prefer investing in smaller amounts.

2. Interest Rates and Returns  

A key point to consider when comparing a fixed deposit vs a recurring deposit is the returns. While both FDs and RDs offer fixed interest rates, FDs tend to provide slightly higher returns. This is because, in an FD, the entire deposit amount earns interest from the start. However, in an RD, the interest is earned gradually on monthly deposits.  

3. Your Goal Duration

FDs are suitable for short-, medium-, and long-term financial goals, whereas RDs are better suited for short- to medium-term goals like saving for a family trip, a festival, or a major purchase.  

4. Financial Discipline  

RDs are an ideal choice for individuals who want to develop a habit of saving on a consistent basis. In contrast, FDs cater to those who have a lump sum amount ready for investment.

5. Tax Implications  

Tax-saving FDs offer deductions under Section 80C, making them a solid choice for those looking to reduce their tax outgo. RDs, however, do not offer any tax benefits, which could be a deciding factor for some investors.  

Hence, when it comes to FD vs RDs, each savings option has its pros and cons. So, you must evaluate your income stream, financial goals, and risk appetite to make the right decision.  

If a fixed deposit is your chosen mode of savings, then head over to IndusInd Bank’s website to get started. IndusInd Bank offers a range of Fixed Deposit options to suit diverse financial needs. With competitive interest rates, flexible tenures, multiple interest payment options, and the convenience of opening and managing deposits online, IndusInd Bank ensures a seamless experience. Whether you are saving for the short term or the long haul, IndusInd Bank is the trusted banking partner to help grow your wealth.  

Conclusion  

Choosing between FDs and RDs ultimately depends on your financial goals and saving style. FDs are perfect for those who can invest a lump sum and aim for higher returns, while RDs are better suited for those who prefer regular savings to build a corpus gradually. If you are still in two minds about what to choose between FDs vs RDs, consider reaching out to a financial advisor. Personalised guidance can help you make a well-informed decision.

Updated 16:21 IST, December 18th 2024