New Delhi: People nowadays are increasingly looking to invest their money. In the market, there are several investment options available to those who are looking to invest. But, one must study the several investment options first and compare them before selecting the one that is most suitable for them.
One of the most popular forms of investment in India is term deposits as the money is safe and secure in the bank. Also, the investor earns interest on their investment. There are two types of term deposits, the Recurring Deposit (RD) and Fixed Deposit (FD) and in this article, we will take a look at the comparison between the two.
What is a Fixed Deposit?
One of the term deposits that banks offer is the Fixed Deposit. It is a safe and popular investment option where an investor has to invest a lump sum amount at one time. While it is not necessary to open a separate FD account, it can be linked to the existing Savings Account of the investor. The FD’s tenure and interest rate will be decided when a person opens the FD Account.
What are the benefits of Fixed Deposit?
- The FD needs a one-time lump sum payment and it offers guaranteed returns.
- There is the option of tax exemption on investments in tax-saving FDs under Section 80C of the Income Tax Act.
- The tenure of FDs can range from seven days to ten years and investors can choose any tenure.
- The FD’s interest rates are normally higher than those offered on savings accounts and one can use an FD calculator to calculate the interest earned on an FD.
- Market fluctuations do not affect the returns of FD and while there is no early withdrawal, emergency or willful withdrawal can be done with a penalty.
What is a Recurring Deposit?
Recurring Deposits are popular investment options which are safe and secure. It is best for salaried people and those who have a low annual income. Every month, a person has to deposit a fixed amount of their income for a tenure which is pre-determined. After the maturity period is over, the investor will get back the principal amount along with the interest earned.
What are the benefits of Recurring Deposits?
- RDs encourage low monthly deposits and the minimum monthly amount one can invest is usually around Rs 500.
- The tenure of RDs ranges from 6 months to 10 years and the investor can choose any tenure option.
- Investments in Post Office RDs are exempted from taxation under Section 80C of the Income Tax Act.
- RDs are risk-free investment options and give a steady stream of income as interest.
- The RD’s interest rate is normally higher than the interest rate on a savings account in the bank and also senior citizens get a higher interest rate.
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