Many times investors get confused about whether to invest in a fixed deposit or a recurring deposit for their investment objectives. The attraction for both these instruments is the fixed returns with the safety of money invested. However, when you compare the two, a fixed deposit scores higher than a recurring deposit. Let's see how these two products differ in earnings and when you should opt for them.
Features
Both FD and RD are fixed-income products available from banks. On the invested amount, banks pay you a fixed interest which can be at a specific frequency until the term or on maturity. At the end of the term, the maturity amount, which is your invested capital, along with remaining or accumulated interest, is paid. Although the interest of banking products changes with interest rate scenarios, in both these products, once you have invested, the interest rate remains the same throughout the term. In recent times, the high rising rates have prompted banks to offer high-interest rates on these two instruments, and so the attraction of investors has increased manifold.
Taxability
Both these products have the same taxability. The interest received from these two is added to your total income and taxed at your personal income tax rate. So if you are in the 30% tax slab, the interest from FD & RD will be taxed at the same rate. However, there is a difference in the nature of tax deduction. In a fixed deposit, banks deduct TDS if the interest income in a year exceeds Rs 10,000, but there is no TDS deduction in a recurring deposit. This one feature sways investors' interest towards RD when there is a comparison.
Where Do You Earn More?
When you compare both these products, a fixed deposit fetches you more income than a recurring deposit. Let's assume you have invested Rs 24,000 in a fixed deposit at the start of the year and Rs 2,000 p.m. in a recurring deposit for a year. Both these products offer you a 9% rate of interest compounded quarterly.
After a year, you will receive Rs 26,324 in a fixed deposit, while in RD you will receive Rs 25,195. So the recurring deposit earns you Rs 1,039 less than a fixed deposit. The primary reason for this difference is that in FD, you invest a lump sum amount, and so the entire money earns interest for one year. But in a recurring deposit, the first installment earns interest for 12 months, the second for 11 months, the third for 10 months, and so on. Due to this variation, FD is able to fetch a higher maturity.
When to Invest in FD & RD?
Although FD earns higher than RD, it's not feasible for a single product to meet all your needs. When you do not have a lump sum to invest but can save a defined amount from your income every month, a recurring deposit is a more viable product. With it, you can achieve an objective of regular savings for your medium-term needs. But when you have a lump sum to invest, then FD is a wiser choice.
Although both these banking products appeal to all classes of investors, they are more lucrative for small investors who are mostly in the lower tax slab. The less or non-taxability of interest, along with high-interest payout in today's scenario, ensures a good fixed earnings for their goals. Avail them as they will help in meeting certain objectives, but do take all associated factors into consideration.
From India, Ahmadabad
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34Features
Both FD and RD are fixed-income products available from banks. On the invested amount, banks pay you a fixed interest which can be at a specific frequency until the term or on maturity. At the end of the term, the maturity amount, which is your invested capital, along with remaining or accumulated interest, is paid. Although the interest of banking products changes with interest rate scenarios, in both these products, once you have invested, the interest rate remains the same throughout the term. In recent times, the high rising rates have prompted banks to offer high-interest rates on these two instruments, and so the attraction of investors has increased manifold.
Taxability
Both these products have the same taxability. The interest received from these two is added to your total income and taxed at your personal income tax rate. So if you are in the 30% tax slab, the interest from FD & RD will be taxed at the same rate. However, there is a difference in the nature of tax deduction. In a fixed deposit, banks deduct TDS if the interest income in a year exceeds Rs 10,000, but there is no TDS deduction in a recurring deposit. This one feature sways investors' interest towards RD when there is a comparison.
Where Do You Earn More?
When you compare both these products, a fixed deposit fetches you more income than a recurring deposit. Let's assume you have invested Rs 24,000 in a fixed deposit at the start of the year and Rs 2,000 p.m. in a recurring deposit for a year. Both these products offer you a 9% rate of interest compounded quarterly.
After a year, you will receive Rs 26,324 in a fixed deposit, while in RD you will receive Rs 25,195. So the recurring deposit earns you Rs 1,039 less than a fixed deposit. The primary reason for this difference is that in FD, you invest a lump sum amount, and so the entire money earns interest for one year. But in a recurring deposit, the first installment earns interest for 12 months, the second for 11 months, the third for 10 months, and so on. Due to this variation, FD is able to fetch a higher maturity.
When to Invest in FD & RD?
Although FD earns higher than RD, it's not feasible for a single product to meet all your needs. When you do not have a lump sum to invest but can save a defined amount from your income every month, a recurring deposit is a more viable product. With it, you can achieve an objective of regular savings for your medium-term needs. But when you have a lump sum to invest, then FD is a wiser choice.
Although both these banking products appeal to all classes of investors, they are more lucrative for small investors who are mostly in the lower tax slab. The less or non-taxability of interest, along with high-interest payout in today's scenario, ensures a good fixed earnings for their goals. Avail them as they will help in meeting certain objectives, but do take all associated factors into consideration.
From India, Ahmadabad
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