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Fixed deposit vs. Recurring deposit: Where to invest?

  • Highlights

  • Both FDs and RDs are for risk-averse investors

  • FDs usually warrant a lump sum investment

  • You must invest a particular amount every month in a RD

  • FDs help build an emergency corpus, while RDs instill financial discipline

Investors can have a tough time figuring out whether to invest their money in fixed deposit or recurring deposit. Their similar features don’t make it any easier for an investor testing the investment waters.

However, the choice depends on the investor’s objectives and corpus of funds. This brings us to the core question - which one should you opt for?

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- Some common features

While in a fixed deposit, you must choose a tenure (usually ranges from a week to 10 years) and invest your funds once. On the other hand, a recurring deposit will warrant a fixed investment amount every month. The tenor of recurring deposits too, can range from a week to a few years. Financial institutions will pay you a fixed interest rate on both the deposits.
In case of FDs, the interest earned will be credited to your account on monthly or quarterly, for a non-cumulative fixed deposit. However, for a cumulative FD, the interest earned along with the principal amount is paid on maturity.

On the other hand, in case of recurring deposit, maturity amount is paid at the end of the investment tenor. Another common feature is that both the products are immune to all market fluctuations and volatility; the interest rate remains fixed throughout the tenure, irrespective of the presiding interest rate scenario.

- Amount to be invested

Generally, in case of a fixed deposit, a lump sum is invested. The higher the amount, the bigger is the corpus. On the other hand, a recurring deposit can have investment amount as little as Rs.500. While a fixed deposit aims to build a corpus for various life goals and serve as an emergency corpus, the objective of a recurring deposit is to inculcate a disciplined savings habit.
Through small but regular savings, a recurring deposit instills financial discipline, essential for long-term wealth creation.

What should you choose?

The verdict is out, and it is a hung jury. Remember that no single investment instrument is designed to shoulder all your financial objectives. If you find it difficult to invest a lump sum in a fixed deposit, you can fall back on the recurring deposit and take your first steps towards wealth creation. However, if you can invest a lump sum, then you should consider a fixed deposit.

While both the options are open to all and sundry, it is usually a risk-averse investor who will consider either of the financial products to fund his or her needs.

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DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.

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