How To Choose Between FD and RD Account?

[Shashank Bhaskar]

Banks offer a gamut of options for depositing your idle funds. The most basic product is the Savings Account. It lets you save up and easily access your finances whenever you want. However, it offers a modest interest and is mainly meant for easy fund accessibility. From an investment perspective, you get a Fixed and Recurring Deposit Account.

Both are Term Deposits offering fixed returns. Besides, they are equally safe and risk-free due to their association with banks. Choosing between them depends on your investment convenience and needs. It is also helpful to compare them on varied parameters and decide accordingly.   

Investment amount: This is the main differentiator for Bank Deposits. An FD requires a lumpsum investment. Hence, it is best when you have unused surplus capital. This amount ranges between Rs. 1000 to Rs. 5000. In the case of Recurring Accounts, the minimum amount is as low as Rs. 100. Moreover, you get the flexibility to deposit in regular intervals. This is ideal when you have a stable income. 

Suitability: When it comes to selection, your needs and convenience play a significant role. For instance, if you want to invest for the long run, fixed investments are the best. However, an RD Account is a practical choice to save for emergencies. It also depends on the funds you have. A corpus is apt for Fixed Deposits, and regular flow of funds is a priority for Recurring Accounts. 

Returns: As you invest in intervals, returns on Recurring Deposit gets compounded quarterly. This affects the interest on your principal amount upon maturity. In contrast, its fixed alternative has a simple computation on the entire lump sum amount. Hence, the interest earned from it is comparatively higher. Moreover, you get to choose interest pay-outs from monthly, quarterly, half-yearly, and annually. 

Taxation: Both Deposit Accounts get similar tax treatment. They also offer a tax rebate if your income does not fall under the tax bracket. Plus, you get tax exemption if your interest amount is lower than Rs. 10,000 in Recurring Account. Despite the similar tax benefits, taxability is higher on the Fixed Deposit interest amount. This is because the amount gets invested in lumpsum, resulting in higher returns. 

Default chances: Since you make a one-time deposit in fixed investments, there is no chance of defaulting. However, recurring funds are an investment in specific intervals. Hence, you are likely to miss out on the dates. If this continues for six consecutive months, banks have the right to close your account. 

Record: Most financial institutions maintain transaction details for Recurring Accounts. You get to track the same through banking apps. Moreover, the Auto-Debit facility lets you automate your instalments. This is not required for its fixed alternative owing to lumpsum investment.