What is the difference between RD and FD?

Term deposit schemes are popular in India as they offer fixed interest rates and better returns than regular savings schemes. Recurring Deposits and fixed deposits are the two most popular term deposit plans as they allow you to grow your income at a fixed interest rate. Also, they provide a safe platform to anyone who doesn’t want to indulge in too many risks. To find the better investment alternative among them, let’s find the key differences between RD and FD:

RDs v/s FDs: Method of investment 

In RDs, you invest a fixed sum every month till the completion of the RD tenor. The RD tenor can be anywhere between 6 months to 10 years as it depends on your choice and the varying tenor options offered by different financiers. 

FDs allow you to invest a one-time bulk amount and they also allow you to pick a tenor that suits your financial goals and plans. 

RDs v/s FDs: Payout options 

With RDs, you will get the interest gains only at maturity. FDs are basically of two types viz. cumulative and non-cumulative FDs. The cumulative FDs provide interest payout directly at maturity whereas the non-cumulative FDs provide multiple interest payouts options. 

For example, the Bajaj Finance FD scheme offers monthly, six-monthly, yearly, and quarterly interest payouts. Therefore, you can choose a payout according to your financial needs. 

RDs v/s FDs: Returns 

FDs offer slightly higher interest than RDs because the interest is calculated on the lump sum amount for the entire tenor whereas only the first deposit earns interest throughout the tenor in the case of RDs. 

Also, the difference in FD returns is more pronounced when you lock-in your deposits at a higher FD interest rate. Recurring deposits are providing interest rates around 6.5% at present whereas bank FD rates are around the same corner. To get better returns, you can invest in a high-paying FD plan like the one offered by the Bajaj Finance FD scheme. 

The FD interest rate of 6.75% offered by the Bajaj Finance FD scheme makes it one of the best alternatives in the segment of fixed income instruments. To check how this higher interest rate translates into better returns, let's look at the below example:

Suppose you invest Rs. 10,000 every month in a recurring deposit for 5 years. Therefore, your total deposits will be Rs. 6,00,000 after 5 years. Now, suppose that you invest Rs. 6,00,000 directly in the Bajaj Finance FD scheme. The returns that you would get by RD and this FD scheme are shown in the below table:

You can see that the Bajaj Finance Fixed Deposit scheme provides much higher returns than a regular RD scheme. You also get 0.10% on investing in the Bajaj Finance FD scheme with an online FD form and if you are a senior citizen, you are eligible for a 0.25% additional interest rate irrespective of whether you invest through online or offline mode. 

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However, if you want to benefit from the monthly deposit feature that is offered by RDs, you can also invest in the Systematic Deposit Plan of Bajaj Finance. 

It allows you to deposit Rs. 5,000 or more every month and the number of deposits can range between 6 and 48 as per your comfort and plans. Also, you can choose to withdraw all the maturity proceeds on a single date much like an RD allows or you can set a fixed tenor for all the deposits so that each deposit is treated as a separate FD. 

The interest rates are applicable as per the FD rate applicable on the deposit scheme. Therefore, this deposit plan allows you to tap-in the features and flexibility of RD while steering your deposits at the speed of an FD.

Recurring deposits and fixed deposits are popular investment options in India because they provide a safe platform to risk-averse investors. However, to find the better option we can compare these two instruments based on investment method, withdrawal options, payout options, etc. The corporate FD plans offered by the Bajaj Finance FD scheme proves to be a wiser alternative as it not only offers a higher FD rate but also provides ease of investment and tools like the Bajaj FD calculator to predict the returns precisely. Also, it provides a Systematic Deposit Plan that lets you enjoy the flexibility of RDs and returns of FDs at the same time.

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