Fixed income instruments such as recurring deposits and fixed deposits are ideal for growing your investments without any risk. They are secure and offer a sufficiently high interest rate that remains fixed over the tenor.
Though both RDs and FDs are fixed income instruments, they are also quite different from each other. Therefore, it is necessary to find their key differences to analyze which of them suits your financial plans and goals. Let’s compare recurring deposit v/s fixed deposit based on various features:
- Method of investment
For investing in a Recurring Deposit, you will have to deposit a fixed amount at regular intervals (usually every month) and FDs enable you to invest a lump sum amount at once.
Therefore, you can start an RD with a relatively lower amount. An FD will prove to be helpful if you wish to invest a particular amount as a contingency fund or else, it can be used for meeting both long-term and financial goals by selecting an appropriate tenor and deposit amount.
The tenor of an RD usually ranges between 6 months and 10 years whereas an FD allows you to pick a tenor ranging from 7 days to 10 years as per your requirements. Also, FD comes with an auto-renewal option whereas no such option is available with RDs.
- Interest calculation
In RDs, only the first deposit attracts interest for the entire tenor as the subsequent deposits will be locked-in for a lesser period. However, the entire amount accrues interest throughout the tenor in the case of FDs.
As a result, FD returns are higher as compared to RD returns even though both the interest calculations are based on compound interest formula.
- Interest rate
The interest rate of an RD ranges from 5 to 6% depending on the financier you choose to invest in RD. The FD rates have been reduced by the banks after the repo rate cuts were implemented by RBI this year.
However, you still can grow your deposits quickly by investing in a Bajaj Finance FD that is offering an FD interest rate of up to 6.85%. The additional FD rate of 0.25% provided to senior citizens and 0.10% extra FD rate offered on utilizing the online FD form for non-seniors make it one of the highest paying FD schemes. The fixed deposit interest rates for senior citizens in the post office are also high but only up to Rs. 15 lakhs can be invested and the tenor can be extended by 3 years only once after the deposit completes the initial tenor of 5 years.
On the other hand, a flexible tenor range of 12 to 60 months can be selected to lock-in your investment amount if you invest in Bajaj Finance FD. Moreover, you can invest in multiple FDs of varying tenors and types by splitting up your corpus. Bajaj Finance provides a multi-deposit facility that lets you invest in multiple FDs with a single cheque.
You need not worry about the safety of your investment as Bajaj Finance FD has received FAAA/stable rating from CRISIL and MAAA/stable rating by ICRA which are the highest credit ratings of these respective credit rating institutions.
Both RDs and FDs offer fixed interest rates and tenor but there are many key differences between them such as the investment method, interest calculation method, tenor range, etc. RDs work for those investors who don’t want to invest a lump sum amount at once whereas FD can be used as a contingency fund and can even be used to achieve both short and long-term investment goals. RD interest rates are higher than bank FD rates currently but you can invest in a Bajaj Finance FD that is providing a much higher FD interest rate.
The extra FD rate provided to senior citizens coupled with the flexible tenor and easy investment options makes it better than SCSS (Senior Citizen Saving Scheme) as well. The interest rate on SCSS is also high but it provides only a single tenor option of 5 years after which the tenor can be extended only once by 3 years. Therefore, Bajaj Finance FD proves to be better on all accounts.