Investment options are often chosen based on different individual requirements. Popular options for investing, such as fixed deposits and recurring deposits, can offer appropriate returns with low risks. These investment instruments are designed to promote saving habits and offer distinct features and benefits. A key difference between fixed deposits and recurring deposits is the flexibility and structure of deposits. Fixed deposits (FD) require investing a lump sum amount, whereas recurring deposits (RD) involve regular monthly contributions. This article aims to discuss FD vs RD by evaluating factors like deposit structure, withdrawal flexibility, renewable options and more.
Fixed Deposits vs Recurring Deposits
The following is the breakdown of the main differences between fixed deposits and recurring deposits.
Deposit Structure
Fixed deposit entails depositing an amount at the start of the investment tenure. This minimum deposit varies across financial institutions. Alternatively, recurring deposits allow people to invest smaller amounts each month, which may start from as low as ₹500. This makes it much easier for individuals who don’t have a large amount to start investing.
Interest Rates and Returns
The interest rates for fixed deposits remain constant throughout the chosen tenure. Moreover, fixed deposits can usually attract a better interest rate as compared to recurring deposits because the invested amount earns interest from the first day of the tenure. On the other hand, recurring deposits earn interest on the amount that slowly accumulates over time with each monthly deposit.
Withdrawal Flexibility
The FD full form is a fixed deposit, which one can withdraw only at a fixed withdrawal date. If one withdraws a fixed deposit before the due withdrawal date, the interest you receive may be reduced. In addition, one needs to pay a penalty to the financial institution for withdrawing early. However, recurring deposits usually do not allow premature withdrawals, which encourages the habit of saving in a disciplined manner.
Interest Calculation Methods
The interest on the principal amount remains fixed during the entire tenure in fixed deposits. However, you may receive the interest payments monthly, quarterly, or yearly. On the other hand, recurring deposits have monthly compounding interest.
Suitability with Financial Goals
When considering suitability with financial goals, fixed deposits (FDs) and recurring deposits (RDs) serve different purposes. FDs are ideal for individuals looking to invest a lump sum for a set period, making them suitable for short-term savings or those seeking guaranteed returns. On the other hand, RDs can be suitable for people who wish to build savings. This makes RDs a great choice for long-term goals like education, fulfilling travel dreams, purchasing a home, etc.
Opening a Fixed Deposit Account Online
The following is how you can open a fixed deposit account online:
- Access your online portal of the financial institution through its official website or mobile application.
- Locate and select the investments or deposits section.
- Browse through available ‘Fixed Deposit’ schemes and their features.
- Complete KYC verification if not previously done.
- Enter personal details and the nominee’s information.
- Confirm the deposit amount and tenure.
- Review all details and submit the application.
After submission, the bank processes the application and sends confirmation through registered contact details.
Opening a Recurring Deposit Online
The following is how one can open a recurring deposit account online easily:
- Sign in to your bank’s digital banking platform.
- Select the ‘Recurring Deposit’ option from investment products.
- Review available RD schemes and their features.
- Complete identity verification if required.
- Select the monthly deposit date and amount.
- Choose the deposit tenure.
- Approve for the automatic monthly deposits.
The system activates the RD account upon successful application processing. Monthly deductions begin automatically on the chosen date.
Choosing Between FD and RD
Ultimately, deciding between fixed deposits and recurring deposits would depend on the availability of funds and the saving pattern. Fixed deposits are beneficial to people who invest lump sums for assured returns while recurring deposits can be suitable for those who earn regular income. These two deposits are also decided according to financial objectives and saving commitments.
Conclusion
Fixed deposits and recurring deposits offer distinct advantages for different financial needs. Understanding these differences helps in making informed investment decisions aligned with personal financial goals. Individuals looking to plan their investment strategy may consider reliable platforms like PowerUp Money that provide helpful tools for proper investment planning. For example, the innovative Power Age feature on this platform helps determine long-term financial independence goals. Remember, thorough planning and selection of suitable investment instruments are essential to minimise risks and enhance gains.
