Fixed Deposits or Recurring Deposits? Which One Should You Opt For?
Both recurring and Fixed Deposits have been considered safe investment options by Indians for years. These are great ways to save up to meet your financial goals. However, choosing between the two can be quite confusing for a common man.
If you’re planning on investing in any of these deposit schemes, it’s good to know which one suits your situation better.
Here’s the showdown between Fixed Deposit vs recurring deposits. We will analyse each financial instrument separately.
A fixed deposit is an investment instrument provided by banks to grant investors the advantage of a higher rate of interest compared to a regular savings account. This investment type comes with specific tenures and provides better returns to depositors once the maturity date is realised. Normally, investors will deposit a lump sum amount with the bank for a specific period of time. NBFCs like Bajaj Finserv provide stable FD Schemes to protect your investment and also offer facilities like online account access and flexible tenor option.
Now We’ll Look At The Pros and Cons of FD :
- Little Risk
When you invest in a Fixed Deposit, you can be sure of not losing the money you put into the bank. You can invest in FDs for a short duration and once that deposit has matured, you can create another short term deposit to reap maximum benefits.
- Use It as Security
Most banks allow the use of FDs as a way of sanctioning loans. If you have a FD in a particular bank, you’re more likely to get 80-90% of the loan amount you’ve requested for.
- Tax on Income of FD
Any incomes that you get from your FD is taxable. If you’re interest rates are more than Rs.10,000, then your bank will compulsorily deduct TDS from your returns. Some financial institutions will not deduct TDS for interest rates upto Rs. 5,000. You can however submit 15G or 15H to the bank, if you don’t fall under the tax bracket.
- Penalty on Premature Withdrawal
If you withdraw your deposit before the maturity date, then a heavy penalty will be levied.
Also Read: Gold ETF vs Fixed Deposit
A recurring deposit is another tenured investment, where an investor can make regular and Fixed Deposits to earn a rate of interest, similar to FDs. The interest earned in an RD is taxed based on the investor’s tax slab, but unlike FDs there are no tax deductions at the source. Here are the pros and cons of RD.
- No Fluctuations
The interest rates of recurring deposits aren’t based on the performance of the stock market. Hence, you get consistent returns.
This scheme is covered by deposit insurance and the Government’s credit guarantee scheme, making it one of the safest investment options in the market.
- Low Returns
This investment option provides consistent returns, but they are very low and when the economy is bad, these returns cannot cover inflationary pressure.
- No Capitalisation
Although these deposits are safe, they cannot capitalise on returns when the market is booming.
While both forms of deposit investments have their pros and cons, the final call should be made based on your financial requirements.