Fixed deposits vs Recurring deposits | Fusion - WeRIndia

Many people deposit money in banks since it is safe. As banks do not offer an attractive interest rate on saving accounts, customers prefer investing in term deposits or fixed deposits to earn good returns. Recurring deposits are another financial instruments that offer high returns.

In this scenario, know the features, benefits and differences between fixed deposits and recurring deposits.

Customers deposit a lump sum amount in Fixed deposits (FDs) for a fixed period. That means they are lump sum one-time payments. Interest is cumulated and given at the time of maturity. However, depositors can choose non-cumulative fixed deposits. With these, they can earn interest monthly, quarterly, and annually in the form of regular income.

On the other hand, recurring deposits (RDs) allow customers to deposit a certain amount into the account monthly or pre-decided period. In other words, customers deposit a fixed amount into a recurring deposit account in small intervals for a certain period, like a year or so. RDs are beneficial to people who wish to invest a small amount in regular intervals like a month.

While FDs intend to offer guaranteed returns to depositors, RDs aim to promote the habit of savings in customers.

The minimum amount to be deposited in an FD varies with each bank, while it is ₹500 for an RD in many banks.

The minimum duration for a fixed deposit is seven days, and it is six months for a recurring deposit. However, the maximum duration is 10 years for both investment schemes.

Interest on both FDs and RDs is taxable. If a depositor earns interest of more than ₹40,000 (₹50,000 by senior citizens) per annum on all fixed deposits with a bank, he/she has to pay TDS at the rate of 10% if the PAN is submitted. If PAN is not submitted TDS is deducted at the rate of 20%.

For RDs, TDS is not deducted as it is not mandatory. However, depositors have to disclose their interest income while filing their ITR.

Coming to returns, FDs give higher returns than RDs. The reason is clear that a lump sum amount is invested in a fixed deposit. On the other hand, a small amount is deposited in a recurring deposit monthly.

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