Fixed Deposits vs. Recurring Deposits: Which is Better for Your Savings?

With regular earnings, savings are equally important for a secure financial future. However, in terms of savings, people prefer options that offer security as well as good returns. Such two popular choices are FD (Fixed Deposits) and RD (Recurring Deposits), both having their advantages. People often get confused about which savings option is best for them. Well, it entirely depends on your set financial goals. So, let us clear the differences in simple terms to help you decide on a better option for your savings.

Understanding Fixed Deposits (FDs)

A Fixed Deposit (popularly understood by FD), is a financial product. It’s a type of investment where you invest a lump sum amount for a specific time period with a bank. During this period, your invested amount gets interest at a predetermined rate. This interest rate is set at the time of your account opening and is usually higher than the returns of a regular savings account. Thus, FD is mostly a preferred option for those looking to grow finances securely.

Key Features of Fixed Deposits

• It’s a one-time investment where you invest a sum of money at the beginning.
• Interest rates are fixed and remain constant throughout the time period.
• You can choose a fixed tenure ranging from a few months to several years, as needed.
• Fixed deposit is a low-risk investment as the returns are guaranteed.

Advantages of Fixed Deposits

Here are some key advantages of saving money through FDs:

• Security Factor: FDs are considered one of the safest investment options. Your Principal amount is secure and you earn a fixed interest amount. 
• Offers Guaranteed Returns: The returns on Principal are predetermined, assuring you exactly what amount you’ll get at the end of the period.
• Flexible Investment Period: You can choose the tenure of investments that suits your needs from six months to ten years.
• Ideal for A Large Amount: FDs are suitable saving options for those who have a large amount to invest.

When to Opt for an FD?

You should opt for FD when you have a large amount to invest and you are looking for a guaranteed returns. However, keep in mind, that money will be locked for the fixed period. So, make sure you do not need that amount for a while. 

Understanding Recurring Deposits (RDs)

Another saving option is a Recurring Deposit (popularly understood by RD). This is also a financial product, allowing you to invest a fixed amount regularly. It is usually done on a monthly basis, for a specific time period. The interest rate is predetermined and you can save a handsome amount over time. This can be a preferable option for those who like to save gradually.

Key Features of Recurring Deposits

• Involves Regular Investment: You need to put aside and deposit a fixed amount every month as a saving.
• Offers Fixed Interest Rate: Like Fixed Deposits, RDs also offer a predetermined interest rate throughout the tenure.
• Flexible Time Period: You can choose the investment period, minimum six months to maximum ten years.
• Guaranteed Returns: It promises guaranteed returns on your investment. You already know the total earnings, so it is a low-risk investment.

Advantages of Recurring Deposits

• RDs help build a habit of saving a small amount regularly. It is ideal for those who prefer to gradually.
• No large amount is required to start an RD. Even small monthly deposits can grow into an ample amount over time.
• You can choose an investment tenure as per your financial goals, from six months to ten years.
• Like FDs, RDs also provide financial security by offering guaranteed returns after the tenure is over.
• You can start an FD Online through your bank’s official website or its mobile app.

When to Opt for an RD?

Choose RD as your saving option if you can keep aside a fixed part of your income every month. Build a discipline of saving monthly and you can grow financially within a tenure of your choice. 

FD vs. RD: Which One Should You Choose?

The choice is completely yours depending on your financial situation and future goals. Consider these before choosing the best FD or RD for you:

• Specify your investment amount first. FD is a better option for investing a large amount at once, otherwise opt for RD to save small amounts gradually.
• To get maximum returns, FD is good to go as it offers higher interest rates than RDs.
• If you need to withdraw the savings amount prematurely, FDs have stricter terms than RDs.
• Returns on both FDs and RDs are subject to tax. To reduce the tax amount, explore other investment options. 

Conclusion

Both FD and RD offer different saving criteria. FD is better for bigger amounts and higher returns, while RD is for small monthly savings. On the other hand, both promise guaranteed returns and security. Also, make a wise decision based on the investment amount and saving habits. For those who are looking for more saving options, Bajaj Finserv can help better. They offer attractive schemes to help you grow your savings safely.