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What is the difference between a fixed deposit and a recurring deposit?

By Finserv MARKETS - Aug 28,2019
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Rohan just received his first paycheck a month into his internship with an IT company. He was elated. As he gave the cheque to his father, he handed it back to him and asked him to begin investing for his future. “The early bird gets the worm,” said his father. Rohan did not know what to do. He had heard of mutual funds but was yet to learn about them. Oh yes, why not go for a fixed deposit, just like dad, he thought to himself. That is when over a casual chat with a colleague, he got to know about recurring deposits.

A survey has estimated that more than one third of millenials, that is, those born between 1965 to 1996, prefer the safety of either a fixed deposit or recurring deposit to the volatility of the stock market, or for that matter mutual funds itself(1). This is a bit surprising considering, they were born at a time when the world was waking up to the digital revolution, and one would expect them to embrace newer avenues. But such is the allure of these banking deposits, that it is difficult not to put your money in them.

Everyone knows what a bank deposit is. You wish to invest your money in the safest instrument possible and you choose it over others. An FD comes with safety ratings from reputed economic agencies such as ICRA and CRISIL, that gives it credibility like no other. And it also gives assured returns in an age where the share market nosedives and stocks plummet at the drop of a hat. Top it with attractive interest rates offered, and you have a winner. You can see your money grow at a maximum interest rate of 8.95 percent when you open an FD available on Finserv MARKETS.

While in a fixed deposit, a minimum amount of Rs 25,000 is needed, you can open a recurring deposit for as low as Rs 2000. So, it is a good option for someone who doesn’t have a huge amount to start with, but still wants to save, invest and grow their money, like a student who is working part time or someone who has just begun their internship. You can open an RD for as little as 6 months unlike an FD which has a minimum tenure of 12 months. Your money in an RD earns interest on a recurring basis, hence the name.
For example, if you open a recurring deposit for 12 months, the first deposit amount will earn interest for 12 months, the second will earn interest for 11 months and so on. Comparatively, a bank deposit, gives more interest at maturity due to the power of compounding. Let us say you invest Rs 24,000 in a FD for 12 months and someone invests Rs 2000 per month for 12 months in an RD. Supposing a rate of interest of 7.2 percent, the monthly interest on bank deposit would be Rs 1786, whereas for RD it would Rs 957. This gap will only widen with an increase in the duration.

The choice is yours though. You can choose either depending on your financial means and convenience. Both would be treated similarly when it comes to taxation. The interest received from both these deposits is added to your income and taxed at the slab rate you come under, whether its 10, 20 or 30. Banks also deduct TDS or tax deducted at source, if your interest income for a financial year exceeds Rs 10,000.

If you have a lump sum amount and are looking to invest it in one go to enjoy greater returns along with stability and security, go for a bank deposit like the one available on Finserv MARKETS. A hassle-free, minimal documentation awaits you. Opening an FD has never been easier. You can do it from the confines of your home or office and even track your deposit on the go. Renew it online as well.

All you need to do is choose the kind of deposit- cumulative or non cumulative, then choose the amount, and the period you wish to stay invested for, on Finserv MARKETS. Upload a few basic documents and upon verification and validation, make payment. That’s it. Your deposit is open now. Don’t wait to get on the bandwagon to wealth creation and stay invested for the long term to reap the benefits.


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