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    Understanding The Difference Between Fixed Deposit and Recurring Deposit

    When searching for differences between Fixed Deposits and Recurring Deposits, it is obvious that these two investment are similar in many respects. Due to their similarities, many people get confused between FD vs. RD and struggle when trying to decide if they should invest in a Fixed Deposit or a Recurring Deposit. Know the key FD vs. RD differences so that you can make an informed investment decision. ...Read More

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    Abhishek Chakravarti

    BFSI Writer

    Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.

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    Sahil Rawal

    BFSI Expert

    Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.

    What is a Recurring Deposit?

    With recurring deposits, the customers have the flexibility to invest a sum of their choice every month and save as per their convenience. This is the primary difference between FD and RD.

    Many banks offer recurring deposits with a tenure that ranges from 6 months to 10 years. The interest rates remain fixed over the tenure. And just like Fixed Deposit, the principal is received on maturity, and you can choose to receive the interest at regular intervals or at the time of maturity.

    Fixed Deposit and Recurring Deposit are two of the most popular financial instruments among risk-averse investors. The most significant advantage of investing in one of these schemes is that the returns are fixed. Since both schemes are quite similar, many people get confused between FD v/s RD and struggle while deciding if they should invest in a Fixed Deposit or a Recurring Deposit.

    In this article, let us know everything about these investment options, including FD v/s RD and which one should you choose.

    What is a Fixed Deposit?

    'To understand FD/RD, i.e., the difference between FD and RD it’s imperative to understand both these investment instruments.

    Fixed Deposit is an investment option that allows you to grow your money over a period at a fixed interest rate. Under this scheme, you have to make a one-time investment at the start of the tenure. This tenure for a fixed deposit can be anywhere between 7 days and 10 years. The principal amount is received on maturity; however you can choose to receive the interest on FD either at regular intervals or at the time of maturity.

    Under a fixed deposit, you can park your savings and enjoy considerable wealth growth over time. As FD interest rates remain constant, Fixed deposit is safe, , and offers guaranteed returns after a period of time.

    FD V/S RD: Key Differences

    Choosing between whether you should invest in a Fixed Deposit (FD) or a Recurring Deposit (RD) can be tough. Unless you have a clear understanding of the differences between FD vs RD. The below table will help you understand the key differences between FD and RD better so that you can make an informed investment decision:

    In this article, let us know everything about these investment options, including FD v/s RD and which one should you choose.

    Here, we have given you a detailed guide on FD v/s RD, the difference between the two types of term deposits.

    1. Investment Frequency

    In a fixed deposit account, you have the option to invest a a large sum in one go. However, in a recurring deposit, you can invest a small amount of money at regular intervals. This is the basic difference to consider when comparing FD vs RD.

    2. Deposit Tenure

    In a fixed deposit account, the time frame ranges between 7 days to 10 years. An individual also has the freedom to select the timeframe. However, in a recurring deposit account, the time frame is between 6 months to 10 years. Here, the individual does not have a choice to select the time frame for investment. This is also a key difference between FD and RD.

    3. Interest Amount

    There is a difference between FD and RD interest amount you earn at the end of the investment tenure. It is much higher for FD than in a recurring deposit.

    4. Interest

    In a fixed deposit account, the interest is paid monthly/ quarterly or on the maturity of the plan. However, in a recurring deposit account, the interest is only paid to the person at the end of the plan.

    5. Motivation

    In a fixed deposit, you earn money as interest when you invest a surplus amount. In the case of a recurring deposit, you develop a habit of saving money as you invest a certain amount of time at a fixed interest rate for a fixed time period.

    6. Default Clause

    In a fixed deposit account, an individual cannot miss payment due dates because the payment is made in one go. However, when it comes to a recurring deposit, if an individual does not pay amount for 6 consecutive months, then the concerned bank has the right to close their RD account.

    ParticularsFixed DepositRecurring Deposit
    Deposit FrequencyOnceMonthly or Quarterly
    Minimum DepositRs. 100Rs. 1000
    Tenure7 days to 10 years6 months to 10 years
    Interest PayoutMonthly or QuarterlyMostly at the time of maturity
    Auto-Renewal OptionAvailableNot Available

    Common Features of FD and RD

    In the previous section, you learned about the difference between FD and RD . Now we are going to discuss some common features which FD and RD share.

    1. Fixed Income Investments

    Both fixed deposit and recurring deposit are fixed-income investments. They offer a guaranteed return on maturity. The interest rate is known to the individual before they invest their money. Moreover, the interest rate does not change during the time period of the deposit.

    2. Guaranteed Returns

    The returns for FD and RD can be calculated even before investing in them. You can get an idea of the maturity amount based on the tenure, amount, and RD or FD interest rates. Using a FD calculator or a RD calculator you can easily plan your investments beforehand and stay on track to reach your investment goals.

    3. Premature Withdrawal

    You can withdraw from an FD or RD before maturity. But you will be required to pay a penalty for premature withdrawal of FD or RD. The penalty amount may increase with subsequent withdrawals.

    4. Loan Facility

    Another common feature of fixed deposit and recurring deposit is that you can avail loan against both of them. The withdrawn amount can be used for any motive. However, the loan amount varies from bank to bank.

    FD v/s RD: Which Should You Choose?

    At this point, you might be wondering whether you should invest in a fixed deposit or a recurring deposit. Here's how you can make a decision.

    If you have a considerable sum of money that can be invested as a lump sum, then fixed deposits can be ideal for you. You can earn more as FD interest rates are usually higher than RD interest rates. You can invest in the cumulative FD, where the interest is compounded.

    On the other hand, if you have sizeable excess income such as Rs. 1000 that you can invest each month, recurring deposits are ideal for you. You can keep depositing a small fixed sum each month. The returns will be credited to your account on maturity.

    Frequently Asked Questions(FAQs)

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    A Fixed Deposit (FD) involves depositing a certain amount with a banking or a non-banking institution for a fixed period of time and for a fixed rate of interest.

    While the minimum tenure of a fixed deposit is seven days; the maximum tenure can go up to 10 years.

    Yes, premature withdrawals of your fixed deposit is allowed in case you need funds immediately.However, you will be subject to penalty charges.

    In case of unforeseen circumstances, the nominee can claim the fixed deposit amount on maturity.

    Instead of paying a penalty by breaking your FD prematurely, you can opt for a loan against this type of term deposit based on the amount you have invested. That way you can ensure the availability of funds for emergencies and earn interest on your FD at the same time. Depending on the lender chosen, a loan against FD of up to 70-90% of your FD account balance can be availed by you.

    A recurring deposit is a unique term deposit that allows people to make regular deposits in their bank account. In return, they can earn decent returns on their investment.

    Yes, you can make the change in nominees for your recurring deposit account. You will have to submit a form in your concerned bank.

    No. The interest will be paid on maturity or on premature closure of the recurring deposit

    Penalty applicable in the case of premature withdrawal of FD differs from bank to bank. However, most banks levy a penalty of 0.5% on the amount withdrawn prematurely. Furthermore, the RD interest that will be payable to the account holder on maturity will be lower than the original contracted rate by 1-2%.

    No, the tenure and installment due date (auto debit date) of an existing recurring deposit cannot be changed once set.

    Yes, as FD can be used to secure credit, one can also get a credit card on FD. Most banks provide this facility to individuals who have an unreliable credit score or no credit history.

    Since both FD and RD are term deposits, the interest rate offered on these investments is dependent on the time period of the investment. Banks and India Post Office offer the same interest rate for FD and RD as long as they are of the same tenure.

    ARN No: Jan23/DFR/09

    Sources:

    www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=7378#13


    www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12125&Mode=0


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      9

      The percentage savings is for a regular pay Max Life Smart Secure Plus Plan ( A Non Linked Non Participating Individual Pure Risk Premium Life Insurance Plan, UIN - 104N118V05)– Life Option for 1 cr life cover for a 35 year old, non-smoker male for a policy term of 40 years vs a 10 year policy term with the same details’

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      **Healthy non-smoking male, 24 years, 2 cr cover,25 years policy term,25 year premium payment term, exclusive pf GST for Max Life Smart Secure Plus Plan (UIN:104N118V05)

      ~~Healthy non-smoking male, 24 years, 1 cr cover,25 years policy term,25 year premium payment term, exclusive pf GST for Max Life Smart Secure Plus Plan (UIN:104N118V05)

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      For Additional Benefits -##On Payment of Additional Premium. The accident cover will only be paid in scenarios where death occurs due to accident.

      *~Disclaimer | Max Life Smart Secure Plus Plan. A non-linked non-participating individual pure risk premium life insurance plan |Benefit available with special exit value -Total premium paid inclusive of any extra premium but exclusive of all applicable taxes, cesses or levies & modal extra. The premium calculated as per Standard premium for 30 year old healthy male, non-smoker, 40 years policy term, 40 years premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan.

      6

      Applicable for Titanium variant of Max Life Smart Fixed-return Digital plan (Premium payment of 5 years and Policy term of 10 years) and a healthy male of 18 years paying Rs. 20,000/- per month (exclusive of all applicable taxes) with 7.50% return. Life Insurance is available with this product.

      ##

      Policy continuance benefit is not available with lifelong wealth variant. **The accrued income will be accumulated on an annual basis at the prevailing reverse repo rate (publish on RBI’s website).

      #

      With “Save the date”, you can choose to take your annual income to any special date in a year.

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      ~

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      Max Life Smart Secure Plus Plan, A non-linked non-participating Individual Pure Risk Premium Life Insurance Plan| Standard Premium for 30 year old healthy male, non-smoker, 40 years policy term, 40 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan| ~1 Conditions for special exit value: Option to receive all premiums paid back, at a specified point in the term of the policy (free of cost). Available when Return of premium variant is not chosen. No additional premium to be paid. Option to receive all premiums back (exclusive of GST). Flexibility of exiting the plan early. Special Exit Value cover applicable till age 68 & above (of your age). T&C Apply.

      6

      Applicable for Titanium variant of Max Life Smart Fixed-return Digital plan (Premium payment of 5 years and Policy term of 10 years) and a healthy male of 18 years paying Rs. 20,000/- per month (exclusive of all applicable taxes) with 7.50% return. Life Insurance is available with this product.

      **

      Max Life Critical illness and Disability (UIN- 104B033V01) available as a rider on payment of additional premium. 64 critical illnesses covered in platinum and platinum plus variant on payment.

      *

      Available on Payment of Additional Premium. The accident cover will only be paid in scenarios where death occurs due to accident.

      7

      Available with Max Life Smart Wealth Plan (UIN: 104N116V08)

      8

      Available with Max Life Smart Fixed-return Digital Plan (UIN:104N123V03). The guaranteed benefits are available with selected life insurance plans & are applicable if all due premiums are paid.

      **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V05) with a life cover of Rs. 50 lakh.

      **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V05) with a life cover of Rs. 75 lakh.

      **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V05) with a life cover of Rs. 1.5 Cr.

      **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V05) with a life cover of Rs. 2 Cr.

      **Disclaimer: Standard premium for 24-year old healthy male, non-smoker, 25 years policy term,25 year premium payment term (exclusive of GST) for Max Life Smart Secure Plus Plan (UIN:104N118V05) with a life cover of Rs. 5 Cr.

      **Our Life insurance policies cover COVID-19 life claims under life insurance claims, are subject to applicable terms and conditions of the policy contract and extant regulatory framework.