Fixed Deposits (FDs) Vs Recurring Deposits (RDs): Which Should Be Your Pick And Why

Both fixed deposits (FDs) and recurring deposits (RDs) are popular investment avenues for risk-averse investors. While bank FDs allow investors to make a lump sum investments and earn higher interest rates in comparison to a savings bank accounts, RDs require small, regular and fixed amounts of investment. Investing in a recurring and fixed deposits are risk-free and both guaranteed returns. But how should an investor decide which of the two is good for them? What are the advantages and disadvantages of fixed deposits and recurring deposits? (Also read: Interest Rates On Post Office Fixed Deposits (FD) Vs Monthly Income Scheme Vs Savings Accounts)
 
Advantages of fixed deposits (FDs)

FDs provide you with the flexibility of fixing your money over a period of time. Fixed deposits come up with varying tenure duration, which ranges from 7 days to 10 years. Sometimes liabilities arise due to uncertainty and you may have an urgency of having cash at that point in time. In those conditions, you can take a loan against your fixed deposits. There is no such rule of percentage offering by banks. However, banks mostly give loans ranging from 60 per cent to 90 per cent of the deposits. At present, the interest rates on one-year bank FDs - range from 7.75 per cent to 8.75 per cent per annum. The interest earned on FDs is taxed as per one's income tax slab on accrual basis. If the interest amount exceeds Rs 10,000, the bank would deduct tax at source (TDS) at the rate of 10 per cent per annum. (Also read: Interest Rates On Post Office Fixed Deposit Vs Public Provident Fund Vs Kisan Vikas Patra)
 
 Advantages of recurring deposits (RDs)

In most cases, recurring deposit interest rates are very similar to that of fixed deposits. Interest rates on RDs vary from 7.25 per cent to 9 per cent depending on the bank and the plan chosen by the customer. For salaried customers, it will be easier to set aside a particular amount every month as savings and for this recurring deposit is the best option. Also, RD schemes come with guaranteed returns and the rate of interest for RD is locked which will protect the investor from interest rate swings.