What is the main difference between a Recurring Deposit and Fixed Deposit?
A Recurring Deposit is an investment that requires you to invest a small amount of money each month. The deposit earns interest, and you receive the principal and interest at the end of the term. A Fixed Deposit is a type of investment on which interest is earned on an amount that is paid in lumpsum at the beginning of a term. You can redeem the principal and interest at the end of the specified term.
The interest rates on Recurring and Fixed Deposits vary from time to time. However in most cases, the interest rate on Recurring Deposits is almost the same as the interest on Fixed Deposits, though interest rate on Fixed Deposits is generally higher.
The tenure of a Recurring Deposit can range from six months to ten years (in multiples of three months). On the other hand, the tenure of a Fixed Deposit can be as low as seven days and go up to 10 years.
You can start an RD with as little as Rs. 100 per month and an FD with as low an amount as Rs 5000.
RDs and FDs have a fixed term. But both Recurring and Fixed Deposits can be redeemed before maturity. Check with your bank if any penalty will apply to premature withdrawals.
Tax Deducted at Source or TDS is applicable on interest paid or accrued on Recurring Deposits. In the case of Fixed Deposits, tax is deducted by banks if the interest accrued is greater than Rs 10,000 in a financial year.
You can avail a loan against both recurring and Fixed Deposits from a bank, with the deposits being used as collateral.
Selecting a deposit
A Recurring Deposit is advisable for investors who wish to save a fixed amount of money each month, while Fixed Deposits are advisable for those have a lumpsum amount they wish to invest immediately. You can use HDFC Bank’s online calculators to determine the maturity value of either of your deposits.