The Fixed Deposit and the Recurring Deposit are two of the most common financial mechanisms used by investors who try to limit their risk exposure. These investments offer predetermined returns which are the primary benefit of participating in any of these deposit schemes.
People are often confuse between Fixed Deposits and Recurring Deposits because both schemes are relatively similar. This causes them to struggle to decide whether they should invest in Fixed Deposits or Recurring Deposits.
How does a Fixed Deposit work?
A fixed deposit is a type of investment that guarantees a specific rate of return on the principal amount invest over the deposit term. You must make a one-time investment at the beginning of the term to participate in this program. Fixed deposit’s period which is also known as the tenure, can be between seven days to ten years.
When the FD matures, you will receive the principal Amount; however, you can receive the interest at predetermine intervals or all at once. With time, you can park your funds in a fixed deposit and benefit from a sizeable increase in your wealth. The highest FD interest rates on fixed deposits do not fluctuate, so investing in them is risk-free and guarantees a return when a certain amount of time has pass.
How do Recurring Deposits work?
Customers can save on their terms and at their own pace by using recurring deposits, which give them the freedom to invest any amount of money every month. The most crucial distinction between FD and RD is that many financial companies provide recurring deposits from six months to ten years.
The interest rates will remain the same during the term of the loan. And similar to FD rates in India, the principal is return to you upon the account’s maturity. You can receive the interest either at predetermine intervals or at the end of the term.
Significant Differences between FD and RD
After understanding what a Fixed Deposit and a Recurring deposit are, you must understand the difference between FD and RD. Before you begin investing, you must comprehensively understand FD and RD to make an inform judgment.
Investment Frequency
You can invest a significant amount all at once in the fixed deposit account while you can invest a modest sum of money at predetermine intervals in recurring deposit account. This is the fundamental difference between FD and RD.
The time frame for using funds in a FD account might be anywhere from seven to ten years. A person has complete autonomy over selecting the period in FD account while the customer does not have a choice to determine the time frame in which the money will be invest in RD account.
The total amount of interest
Once the investment period ends, there is a distinction in the Total Amount of interest you receive from FD and RD investments. When compare to a regular deposit, it is significantly more for FD.
Interest
When the plan ends, the highest FD interest rates accrued on a fixed deposit account are paid monthly, quarterly, or all at once. For an account that accepts periodic deposits, the individual will not receive interest until the plan is complete.
Motivation
When you invest more funds into a fixed deposit, you are eligible to receive additional funds from the highest FD rates in India. When you set up a regular deposit, it becomes second nature to save money over time as you commit to investing a predetermine amount of money at a predetermine interest rate.
Default Clause
Because the payments are made all at once, a person can’t miss the due dates associate with their fixed deposit account. When it comes to a RD account if a person does not pay any amount for six months in a row, then the bank that is responsible for the individual’s RD account has the authority to shut the account.
