What is the Difference Between Fixed Deposit and Recurring Deposit?

Features

Fixed Deposit

Recurring Deposit

Tenure

In FD schemes, the tenure ranges from 7 days to 10 years. Here, the Fixed Deposit holder is provided with the flexibility to choose the tenure as per their financial requirement.

In Recurring Deposit schemes, the tenure ranges between 10 days to 7 years. Here, one has to deposit a fixed amount every month till the end of the maturity period.

Amount investment limit

FD schemes do not have a deposit limit. For tax-savings purposes, the maximum amount which can be deposited in a tax-saving FD instrument, ranges between Rs 1.5 lakh to 2 lakhs per annum, as per the Income Tax act 1961.

In RD schemes investment should be in multiples of Rs 1000. The maximum amount one can invest in a recurring deposit scheme is Rs 15 lakh.

Return on investment

If you are investing for the year,  the rate of interest offered on FDs ranges between 6.50-7% in most of the banks and NBFCs. If you are opting for corporate fixed deposits, the interest rate offered may be up to 8%. For example, Shriram City Fixed Deposit offers an interest rate up to 7.75%.

The Recurring Deposit interest rate offered by financial institutions including banks and NBFCs is between 5.25% to 7.90%. Financial institutions offer interest rates as per the tenure of the recurring deposit and the amount deposited.

Tax exemption benefits

One can claim tax exemption on a fixed deposit scheme under Section 80C of the Income Tax Act, 1961.

Recurring Deposit schemes do not have any tax-exemption provisions. Interests earned over Rs 10,000, annually, are liable to be taxed by the Government of India.

Required documents

Your PAN Card, Aadhaar Card and your driving license.

Your PAN Card, Aadhaar Card, driving license, photographs, and a canceled cheque.

Interest earned

As the annual interest earned on Fixed Deposits is taxable, all financial institutions deduct TDS for the same.

The annual interest earned on Recurring Deposits is also taxable, but you are required to pay the tax at the end of the financial year based on which tax slab your annual income, combined with the RD interest, falls under.

Loans

You can apply for a loan against a Fixed Deposit

There is no provision to apply for a loan against your recurring deposit. However, you may break the RD at any point in time as per your financial need. It works as an emergency saving of yours.

Eligibility

1. Resident Individuals
2. Private and public limited
3. Societies and Trust
4. Companies
5. HUF

1. Resident Individuals
2. Any company, corporate, commercial organization, proprietorship
3. Any government institution

Withdrawal procedure

Withdrawal is only possible after the maturity period has ended. For premature withdrawals, a penalty is levied.

Withdrawal happens at the end of the tenure. You may, however, request the bank for premature withdrawals. Whether a penalty will be levied or not, and if so, how much, is decided by the financial institution based on their recurring deposit premature withdrawal policy.