What is the Difference between FD and RD?

Fixed Deposits (FD) and Recurring Deposits (RD) are the two common investment options that banks provide to the customers in India. Both these instruments provide assured return with the safety of the investment. However, the interest earned on the fixed deposit is more than that of Recurring Deposit. To help you know more about these two investment schemes, this article highlights the difference between Fixed deposits and recurring deposits:- 1.Purpose: FD enables investors to assemble their savings and earn higher interest on it, instead of parking their money in a savings account. An RD, however, instills in individual a regular habit of saving. 2.Duration: While the duration of fixed deposit accounts is generally 7 days to maximum 10 years, the recurring deposit accounts last for minimum 6 months to the maximum 10 years. 3.Eligibility: All residents of India and Hindu Undivided Families (HUF) can open an FD and an RD accounts. An RD can also be opened for minors by their parents and legal guardians. 4.Renewal and Withdrawal: a.Fixed Deposit accounts: These deposits can be auto-renewed. The tenure of the deposit does not change in this case but the interest rate might differ as per the current market trends. If you do not want to auto-renew the investment, you can withdraw your deposits at the time of maturity. Pre-mature withdrawals incur charges. Moreover, if your deposits are more than 20,000/- it can be directly transferred to your savings account. In case it is less than 20,000/- you can take the amount in cash. You cannot withdraw money for the FD account for a minimum of 5 years in the case of tax-saving deposits. b.Recurring Deposits: You cannot make partial withdrawals from the recurring deposits, but some banks offer a loan facility against RD by keeping it as collateral. Premature withdrawals in this case are possible, but the interest rate will be less than the basic rate which is somewhere around 8.40%. 5.Loan against FD and RD: Both RD and FD can be used as a collateral to get a loan. However it is good if you look for this option only when you are in urgent need of funds. The major difference in keeping FD or RD as collateral is that the range of loan you can get against FD is 70-90% as per the bank whereas on RD you can get up to 90% of the deposit value. 6.Interest rate and taxability: The interest earned on RD is slightly less than fixed deposits which vary from 5.25% to 7.90% for one year. As both FD and RD have the same taxability, the interest you get from these two schemes will be added to your total earnings and tax deductions will be made at your private income tax rate. But in a fixed deposit scheme, TDS is deducted by the bank if you earn an interest of Rs 10000 or more in a year. There is no TDS deduction in case of recurring deposit. This one feature pulls investors’ towards RD when both the interest rates of both the schemes are evaluated. So all in all, choosing any one of these totally depends on your needs. A fixed deposit account get interest on the initial amount that is deposited, but in recurring deposits, the first installment earns the interest for twelve months, the second for eleven months, the third for ten months, so on and so forth until the end of the deposit term. In real time, you make more money with a fixed deposit but it does not provide the convenience of depositing money in installments over a period of time, as you get in recurring deposit scheme.