OR FD and RD Comparison: Interest Rates and Returns

Both RDs and FDs are preferred by investors who look for stability and safety of returns. Also, since the interest rates of both these instruments are higher than savings accounts, they are among the most popular instruments in the country. 

The interest rates and tenors of these instruments are also fixed and therefore, calculation of interest prior investing is possible in both types of investments. However, these investment options vary in terms of investment method, interest calculation method, returns, and many other features. 

Let’s find the key differences between these instruments to decide which one of them is better: 

Investment method

• In a recurring deposit, you can deposit a fixed sum every month till the completion of its tenor. The entire deposited amount along with the interest gains are returned upon tenor completion.

• On the other hand, a fixed deposit also known as a term deposit allows you to invest a lump sum amount at once for a fixed period after which you receive the interest along with the invested amount.

• You can also receive the interest periodically by investing in a non-cumulative FD whereas no such option is provided by an RD.

The difference in calculation of interest

• Both RDs and FDs compound the interest periodically but the interest calculation methods are slightly different. In recurring deposits, only the first deposit attracts interest for the entire tenor whereas the subsequent deposits gain lower interest as they are locked-in for a lesser period.

• In the case of fixed deposits, the entire investment amount attracts interest for the entire tenor which allows your deposits to accrue higher interest at maturity. Therefore, FDs offer better returns than RDs.

• For calculating the exact returns offered by these instruments, you can check the RD calculator or FD calculator monthly interest tool provided on the portals of the financiers.

Which is a better option?

The returns offered by RDs and FDs depend on the interest rates that apply to them. The RD interest rates are around 6.75% and the bank FD interest rates vary from 3% to 6.5%.

Both FD and RD interest rates depend on various factors like tenor, financier you have chosen to invest, etc. 

However, the interest rates of both RDs and bank FDs are on the lower side currently which might impact your returns. Moreover, the interest gains post taxation will be not enough to grow your investments at a good pace. 

To ensure high returns and to beat the inflation rate post taxation, you need to invest smartly and choose an FD plan that offers high returns. For example, you can invest in corporate FDs like those offered by Bajaj Finance. The fixed deposit interest rates of Bajaj Finance FDs are up to 7.35% and this additional interest rate will have a noticeable impact on your returns if you compare it with returns offered by bank FDs or RDs. 

Also, you can split your funds into multiple FD plans and choose a varying tenor between 12 and 60 months for each deposit for getting more liquidity options. You can also invest in a Systematic Deposit Plan or SDP if you do not intend to invest all your savings at once. 

The SDP will allow you to deposit Rs. 5000 or more every month and the number of deposits can vary between 6 and 48 as per your financial obligations. A tenor up to 60 months can be set for each deposit or you can make deposits in such a way that all the deposits mature on the same date. Thus, SDP will allow you to earn better returns while providing the flexibility of investment like a recurring deposit does.

Investors have always preferred RDs and FDs as these instruments provide stable and good returns. However, the interest rates of fixed income instruments have been reduced in recent times and this has taken a toll on the interest rates of RDs and bank FDs. For earning higher returns, you can invest in a corporate FD like Bajaj Finance that offers interest rates up to 7.35%. To check returns before investing, you can use an FD calculator. Also, if you don’t feel like depositing a lump sum amount, you can go for the SDP (Systematic Deposit Plan) that provides a convenient investment option of investing in monthly FDs while ensuring high returns to the investors.

Author Bio:

Gaurav Khanna is an experienced financial advisor, digital marketer, and writer who is well known for his ability to predict market trends. Check out his blog at Highlight Story.