Fixed deposits (FDs) are instruments of investments offered by banks or NBFCs. One can deposit their money to get highest fd interest rate than savings accounts for a specified period. The specified period and rate of interest vary for every financer.
Post investment, the money starts earning an interest based on the period of the deposit. Generally, the money is locked in for the specified period, but one may withdraw it after paying penalty charges to the financer. They are the safest form of investment instruments and offer excellent stability.
Assured Returns: Returns on FD is assured, and there is no risk of loss of principal. One can also opt for periodic interest payouts, to helps manage the monthly expenses. FDs do not get affected by market fluctuations, which ensures greater safety for investment capital. Some financiers also offer good schemed with higher returns for senior citizens.
A Recurring Deposit, also known as RD, is a form of term-deposit offered by various Indian Banks. It is a tool that allows people to make investments in the form of regular deposits and earn a decent amount of ROI. Due to the routine and small deposits and an interest component, it often provides adequate flexibility and ease of investments to every individual.
Flexibility: RDs are more flexible in most aspects as compared to FDs. An RD account holder can choose to invest a fixed sum every month while earning decent interest on the amount. RDs are an ideal saving-cum-investment instrument.
After understanding the basic differential features of both the type of investment, the question arises which of them is a better form of investment or which investment gives more returns.
Prima facia, it is essential for us to understand that individual earning and saving behavior also determines the best-suited investment for an individual. Like FD requires a lumpsum deposit of money at one time whereas in an RD money can be invested in small and easy installments, so it is always advisable for an individual to choose an investment scheme which is easy on their pocket.
Fixed Deposit is a better option for those who have a lump sum amount to invest and who are also looking for the regular inflow of cash, as it comes with a choice of monthly and quarterly payouts.
For example, retired persons can invest proceeds received at the time of retirement in a long-term FD. This will ensure the protection of the capital and also provide regular interest for their monthly expenses. Similarly, a salaried employee can invest their bonuses in an FD and later on use it to mitigate bigger expenses such as buying a car or refurbishing their house, etc.
Now if one doesn’t have a lump sum to invest, but can spare small amounts of money every month, you can opt for RDs. For instance, you can save regularly in an RD and time it to match your child’s school fees at the beginning of the academic year. A couple that likes to travel can save money in an RD for the dream foreign holiday they are planning.
Including both FDs and RDs in the investment portfolio gives safe and secure returns.
The returns on both these investments differ slightly. If we look at a shorter period say one or two years then Fixed Deposit rates are such that it may yield more returns as compared to RD, but a little more prolonged period of maturity will show a different result where an RD might yield more than an FD.
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