FD vs RD: What works best for you?

2 MinsApr 06, 2023

When planning your investment portfolio, it is essential to include fixed-income instruments, such as bank deposits. This holds for both conservative and risk-taking investors. The reason is that fixed-income instruments offer a cushion to your investments and help mitigate the risk of the volatility of market-linked investments. This makes bank deposits – Fixed Deposits and Recurring Deposits, a preferred investment choice.

FD vs RD: What works best for you?

Considered one of the safest investment options available, Fixed Deposits and Recurring Deposits are also the go-to investments as they offer quick liquidity during emergencies. Now with the new interest rates and revision in income tax slabs, they are attracting attention once again.

Fixed Deposits and Recurring Deposits

Fixed Deposits (FDs) and Recurring Deposits (RDs) are offered by public and private banks both. They have some similarities:

1.      Same interest rates for most of the banks
2. Investment for a fixed period
3.      Fixed return on maturity
4.      Same taxation rules
However, FDs and RDs are different in many aspects.  

Difference between FD and RD

ParametersFixed Deposit (FD)Recurring Deposit (RD)
How you  investInvest a lump sum for a fixed periodInvest a fixed amount every month for a fixed period
Tenure7 days to 10 years6 months to 10 years
Minimum investment amountRs. 5,000Rs. 500
Interest payout optionMonthly or quarterly or ReinvesmentPayout on Maturity with Principal
Auto-renewal optionCan opt to renew your principal or principal + interestNot available
Penalty for delay in instalmentNot applicable Rs 10 per Rs 1,000 per month for the period of delay. (Eg: Penalty for a one-month delay in a Rs 50,000 RD = Rs 500) 

While both FDs and RDs offer the same interest rates, which one you should invest in depends solely on your needs and financial situation.

Fixed Deposit

If you have received a huge bonus or accumulated a significant amount in your Axis Bank Savings account with no plans of spending it shortly, creating an FD can earn you a higher interest rate.

When the interest rate is rising, you can use FD laddering strategy and create several smaller FDs instead of a large RD to lock in higher interest. For instance, instead of a Rs 50,000 RD, you can create a Rs 50,000 FD every month for the next 12 months and maximise your interest income.    

If you are liquidating other investments to make a lump sum purchase like a house down payment or buy a car, you can park that money in a 1-3 month FD and get a higher interest on it.

If you are a retired senior citizen, you can invest a portion of your life savings in FDs and opt for monthly interest payouts. This will keep your principal intact while giving you a fixed monthly income. FDs offer higher interest rates to senior citizens. 

An added advantage of FDs is that you can take a loan of up to 85% of the FD amount at an additional interest of 2% above the FD interest rate against them.

Also Read: [Know the different types of Fixed Deposits]

Recurring Deposit

FDs are great – but what if you do not have a lump sum to invest? Then you can opt for RDs where you can invest small amounts every month. As you can determine the amount and tenure of RD and know the maturity amount in advance, you can plan your liquidity for major expenses. For instance, if your annual insurance premium of Rs 1 lakh is coming up in the next 6 months, you can create a Rs 17,000 FD and select the maturity closer to the payment.  

You can also use RD to inculcate a regular savings culture in the house. 

How to invest in deposits?

Opening an Axis Bank Fixed Deposit or Recurring Deposit is easy, with minimum documentation required. You can invest by visiting your nearest Axis bank branch, or via internet banking or even mobile banking. If you are an Axis Bank Savings Account holder, you need to submit a valid identity and address proof and a photograph. Whereas, non-Axis Bank customers will require a letter of introduction from another bank or an Axis Bank Savings Account holder for the last six months. That’s it!

It’s a good time for investing in India. Make the most of this opportunity by opening a Fixed Deposit or Recurring Deposit today.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.