Many a times investors get confused when deciding between Fixed Deposit (FD) and Recurring Deposit (RD) as both are fixed return investment options with zero risk probability. Let’s take a look at some factors that clearly explains the real difference between FD and RD:-
- Purpose: The purpose of fixed deposit is to enable investors to earn higher interest amount on their investment than they can get from their regular savings account. Recurring deposit, on the other hand, is meant to teach an individual the habit of saving every month.
- Deposit Term: While fixed deposit account can be opened for a minimum 7 days to maximum 10 years depending on an individual’s requirements, a recurring deposit, however, can be opened for a minimum 6 months to a maximum of 10 years.
- Interest Earned: The fixed deposit interest rates are calculated in a compounding manner on the initial lump sum deposited while in recurring deposited, the interest is calculated on the monthly basis which means that the first instalment earn interest for 12 months, the second for 11 months and so on till the end of the deposit term.
- Eligibility: Most Banks offer the Indian residents and Hindu Undivided Families (HUF) to open FD and RD accounts with them. Some banks even offer FD and RD schemes for children and minors where legal guardians and parents are supposed to oversee the investment.
- Renewal and Withdrawal Policy of RD and FD:
- Fixed Deposit accounts can be auto-renewed. However, in this case, the interest rate might differ as per the current market trends while the deposit term remains the same.
- Investors who do not want to auto–renew the funds can withdraw the amount at the time of maturity. If your investment is more than Rs.20,000/- it can be directly transferred to your savings account. If the amount is less than Rs.20,000/- you can take the amount in cash.
- In fixed deposit, pre-mature withdrawals are subjected to penalties. No withdrawals are allowed for a minimum of 5 years in the case of tax-saving deposits.
- Recurring deposits do not support partial withdrawals but some banks offer loan against RD, where the RD amount is kept as collateral. Premature withdrawals are possible in recurring deposit accounts, but the rate of interest will be less than the base rate (which is around 8.40%).
Interest Rates offered by Some Reputed Banks on Recurring Deposit Schemes:
- Allahabad bank offers the interest of 6.00% to 15.00% P.A. for deposit period 3 to 24 months on the deposit of Rs.100 per month.
- The recurring deposit schemes in the Axis bank are offered at an interest rate of 6.50% to 6.75% for the duration of one year to less than 2 years. The recurring deposit can be initiated with a minimum deposit of Rs 1000 and in multiples of Rs 500 subsequently.
- HDFC Bank offers a maximum interest rate at 5.75% to 6.75% for the initial year. The interest rate tends to decrease to 6.25% in the 2nd year and 6.00% thereafter for Recurring Deposit schemes.
- The Central Bank of India offers recurring deposit schemes at an interest rate of 6.60% in the initial year and 6.50% for the later years till maturity.
Fixed Deposit Interest Rates offered by Banks:-
Name of the Bank
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Tenure with the highest interest rate
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The State Bank of India
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6.25% (46 days to 1year 364 days)
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HDFC Bank
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6.75% (1 year to 1 year 3 days)
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PNB
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6.60% (1 year)
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ICICI Bank
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6.75% (1 year to 2 year)
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Axis Bank
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6.85% ( 1 year 5 months to 1 year 5 months 29 days)
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IDFC Bank
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7.50% (366 days)
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Note: The fixed deposit interest rates and the rates on recurring deposits may vary across banks in India. These rates may also change in future as per the bank’s guidelines and market trends, therefore it is advised to confirm with the respective bank about the current recurring and fixed deposit interest rates before making an investment.
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