What is the Difference Between Fixed Deposit and Recurring Deposit?
- Fixed Deposit
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Table Of Content
- What is a fixed deposit?
- Types of fixed deposit schemes
- Standard Fixed Deposit scheme
- Cumulative scheme
- Non-cumulative scheme
- Tax-savings fixed deposit scheme
- What is a recurring deposit?
- Difference between Fixed Deposit and Recurring Deposit
- Conclusion
When it comes to making financial decisions about investments, there are several avenues available in the online marketplace. Among them, the most popular ones are fixed deposits and recurring deposits. Many of us get confused between fixed deposits and recurring deposits as both promise a fixed return and less risk. Below are the differences between the fixed and recurring deposit schemes:
What is a fixed deposit?
Fixed deposit is one of the most popular investment schemes that come with a guaranteed return. There is no risk involved in a fixed deposit investment. Under this scheme, a lump sum amount is locked with banks or Non Banking Financial Institutions (NBFC) for a fixed period at a certain rate of interest. The rate of interest offered by banks or NBFCs varies with the tenure of your fixed deposit scheme. At the end of this tenure, you will receive the amount along with your interest.
Types of fixed deposit schemes
- Standard Fixed Deposit scheme
The standard fixed deposit is the most commonly chosen investment option. Its tenure ranges from 7 days to 10 years. The interest earned on a standard fixed deposit is higher than the interest earned on the money kept in a normal savings account.
- Cumulative scheme
If you are choosing a cumulative standard fixed deposit scheme, the interest, which is compounded monthly, quarterly and annually, is payable on the maturity of the fixed deposit.
- Non-cumulative scheme
The interest gained in a non-cumulative fixed deposit scheme is credited on an annual, monthly, and quarterly basis. On maturity of the fixed deposit, you will receive your principal amount.
- Tax-savings fixed deposit scheme
This is a 5-year fixed deposit scheme option to save tax under Section 80C of the Income-tax Act 1961. Through it, the Income Tax Department provides Indians with an option to claim an annual tax exemption of up to Rs 1.5 lakhs by investing in this tax-saving instrument. The interest rate at present on tax-saving FDs range between 5-6%.
What is a recurring deposit?
A saving, as well as an investment option, investing in recurring deposits, is one of the best ways for individuals to develop a wealth-building habit. It teaches youngsters how to save a small amount of money each month from their salary. The tenure for recurring deposits are in the range of 6 months, 12 months, 2 years, 3 years or 10 years. The best part about recurring deposits is that you can withdraw the invested amount at any point in time. It works like your emergency fund if you are making recurring deposits for a short-tenure.
Difference between Fixed Deposit and Recurring Deposit
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Features
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Fixed Deposit
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Recurring Deposit
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Tenure
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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.
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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.
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Amount investment limit
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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.
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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.
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Return on investment
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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%.
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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.
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Tax exemption benefits
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One can claim tax exemption on a fixed deposit scheme under Section 80C of the Income Tax Act, 1961.
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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.
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Required documents
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Your PAN Card, Aadhaar Card and your driving license.
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Your PAN Card, Aadhaar Card, driving license, photographs, and a canceled cheque.
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Interest earned
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As the annual interest earned on Fixed Deposits is taxable, all financial institutions deduct TDS for the same.
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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.
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Loans
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You can apply for a loan against a Fixed Deposit
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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.
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Eligibility
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- Resident Individuals
- Private and public limited
- Societies and Trust
- Companies
- HUF
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- Resident Individuals
- Any company, corporate, commercial organization, proprietorship
- Any government institution
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Withdrawal procedure
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Withdrawal is only possible after the maturity period has ended. For premature withdrawals, a penalty is levied.
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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.
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Conclusion
If you have any more questions related to the differences between Fixed Deposits and Recurring Deposits, Shriram City Union Finance Limited is happy to resolve all your queries and concerns. We are known for offering the best and most secure recurring deposit and fixed deposit options. We have been serving the Indian financial marketplace for almost 45 years. Our deposit schemes are accredited MA++/ with a stable outlook rating by ICRA. Check our latest Shriram city recurring deposit interest rate and fixed deposit interest rate for 2021.
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