Creating and multiplying wealth requires a lot of financial discipline. You can grow your wealth systematically by investing in the commodities/stock markets. You can also opt for more conservative instruments like bonds/term deposits depending on your risk-return appetite.
In the last decade, India has witnessed the popularity of term deposits growing by leaps and bounds. Minimal risk coupled with stable returns make Fixed Deposits (FD) one of the safest investment avenues. Currently, Bajaj Finance FD rates are one of the best in the country.
Another type of deposit that enjoys equal popularity especially among the lower income group is the Recurring Deposit (RD).
Let us now examine the differences between FD and RD.
Fixed Deposit Vs Recurring Deposit
- Definition and Types
An FD is a type of deposit that locks your money for a stipulated period of time and earns a fixed rate of interest that is either reinvested or paid out monthly/quarterly/semi-annually/annually, depending on the interest payout frequency chosen by you.
When interest income is reinvested and repaid along with the principal at maturity, it is known as a cumulative FD. When an FD pays out interest income at periodic intervals without compounding it, such an FD is known as a non-cumulative FD.
FDs are the best investment options for risk averse investors with lump sum amounts at their disposal.
A recurring deposit is a type of deposit that allows you to deposit a specified amount on a monthly basis for a minimum period of 6 months.
Flexi RDs allow you to make monthly deposits in multiples of the chosen deposit amount. For example, if your minimum monthly installment amount is Rs 1000, you are free to deposit Rs 2000 or Rs 4000 etc in some months.
RDs are a good option for individuals in the small income bracket.
Bajaj Finance offers both cumulative and non-cumulative FDs. Their Systematic Deposit Plan is a variant of recurring deposit that allows you to make small deposits on a monthly basis.
- Deposit Tenure
The minimum lock in period for FDs is 7 days and maximum is 10 years. The minimum deposit tenure for RDs is 6 months and maximum is 10 years.
- Investor Default risk
An investor cannot default in depositing the principal amount of an FD as it is a single lump sum payment. Hence, FDs are sans default risk.
On the other hand, investors may default in making monthly deposit payments in an RD. The bank will foreclose the RD account if the investor defaults in paying monthly installments for 6 months continuously.
- Interest rate and interest pay-out frequency.
The interest rates offered on RDs are usually lower than those on FDs for the same investment tenure.
Moreover, RDs do not have periodic interest payout options like FDs. Interest is paid along with principal only at maturity.
An FD on the other hand enables you to receive interest income on a monthly/quarterly/semi-annual/annual basis. You can also opt for the interest compounding option and receive cumulative interest accrued along with principal amount on the date of maturity.
Bajaj Finance FD offers higher rates of return at 6.85% for senior citizens for a tenor of 5 years, coupled with a wide range of interest payout options.
- Multi-deposit and partial withdrawal facility.
You can avail multi-deposit schemes which allow you to open multiple term deposits with the same institution. You can also withdraw a part of your FD amount to meet your liquidity needs. These facilities are not available for an RD.
Bajaj Finance FD offers multi-deposit facility along with other facilities like premature withdrawal and Loan Against Security.
Thus, Bajaj Finance term deposit schemes are recommended over traditional recurring deposits.
In India, FDs and RDs are the most popular when it comes to stable investment schemes. You must examine their differences closely before choosing either one among them. RDs enable you to deposit a fixed amount every month that gains interest till your RD matures. On the other hand, you will have to invest a lump sum amount in an FD and the deposited amount gains interest throughout the tenor. Your investment grows at a fixed rate in both the cases but as only the first installment earns interest for the entire tenor in case of RDs, the returns of FDs are slightly better. To further improve your returns, you can invest in a high-paying and stable investment scheme like Bajaj Finance FD. It provides a flexible tenor and its multi-deposit facility can be used to invest in multiple FD schemes at once. It is also a stable investment scheme as top credit rating agencies have rated it highly for being a secure investment option.