Investments are a crucial aspect of personal finance, and they play a very important role in helping individuals achieve their financial goals. Be it an FD (Fixed Deposit) or RD (Recurring Deposit), it totally depends on the investor and their goals.
However, the FD interest rate in India is quite lucrative, which has undoubtedly pulled many individuals towards it. Whether it is a short-term goal or a long-term goal, people prefer to invest in a fixed deposit.
What is a fixed deposit?
A Fixed deposit is an investment scheme where a potential investor deposits a certain amount in the bank for a fixed period of time at an agreed rate of interest. When this investment tenure ends, the individual receives the amount invested along with the compound interest.
Unlike stocks that are volatile in nature, the returns in FD are assured and don’t depend on what’s going on in the market.
(Tip: To calculate fd interest beforehand is always a good idea.)
What is a recurring deposit?
A recurring deposit (RD) is a type of savings account offered by financial institutions/banks that allows consumers to save a fixed amount regularly, typically on a monthly basis, for a fixed period of time. The amount deposited can be as low as a few hundred rupees, and tenure in this investment scheme ranges from 6 months to 10 years.
The rate of interest offered here is generally higher than that of regular savings accounts and is fixed for the entire investment duration. When the investment tenure ends, the deposited amount and accumulated interest are returned to the depositor.
What is the difference between FD and RD interest rates?
Rate of interest
The rate of interest offered on FDs is generally higher than that on RDs. This is because it is a lump sum investment, and the potential investor agrees to keep the money locked in for a fixed tenure. The longer the tenure of the FD, the higher the FD interest rate is likely to be. On the other hand, the rate of interest on RDs is generally lower than that on FDs because the deposit is made in small chunks at regular intervals.
FDs tenure can range from a few months to several years, whereas the tenure of an RD is usually fixed at a minimum of 6 months and a maximum of 10 years. When it comes to FD, the depositor is free to choose the tenure as per the financial goals, whereas the tenure of RD is fixed at the time of opening the account.
Keep in mind that FDs are less liquid than RDs because the money is locked in for the entire deposit tenure. Therefore, if the depositor wants to withdraw the money before the FD matures, they may have to pay a penalty amount. However, RDs offer more liquidity because the deposit is made in small amounts, and the depositor can easily withdraw the money without any kind of penalty.
After considering these factors, it totally depends on you and your investment strength. Moreover, it is essential to keep the ultimate financial goal in mind before investing your hard-earned money. Invest wisely and smartly! Lastly, remember to calculate fd interest by using a FD calculator before investing.