{"id":3864,"date":"2018-05-11T21:55:11","date_gmt":"2018-05-11T16:25:11","guid":{"rendered":"https:\/\/www.antworksmoney.com\/blog\/?page_id=3864"},"modified":"2019-09-25T12:42:43","modified_gmt":"2019-09-25T07:12:43","slug":"difference-fixed-deposit-recurring-deposit","status":"publish","type":"post","link":"https:\/\/www.antworksmoney.com\/blog\/difference-fixed-deposit-recurring-deposit\/","title":{"rendered":"Difference between Fixed Deposit and Recurring Deposit"},"content":{"rendered":"

Let\u2019s take a look at the points with the table below which explains FD vs RD:<\/h2>\n\n\n\n\n\n\n\n\n\n\n\n
Fixed Deposits<\/strong><\/td>\nRecurring Deposits<\/strong><\/td>\n<\/tr>\n
Purpose:\u00a0<\/strong>To enable investors to mobilize idle savings and earn with a higher rate of interest than regular savings bank accounts.<\/td>\nPurpose:\u00a0<\/strong>To inculcate a regular habit of savings among the public.<\/td>\n<\/tr>\n
Duration:\u00a0<\/strong>Fixed deposit accounts can be opened for a minimum of 7 days, to a maximum of 10 years.<\/td>\nDuration:\u00a0<\/strong>Recurring Deposit accounts can be opened for a minimum of 6 months, and a maximum of 10 years.<\/td>\n<\/tr>\n
Eligibility:\u00a0<\/strong>All resident Indians and Hindu Undivided Families (HUFs) are eligible to open a fixed deposit account.<\/td>\nEligibility:\u00a0<\/strong>All resident Indians and Hindu Undivided Families (HUFs) are eligible to open this account. RD accounts can also be opened for minors by their parents or legal guardians.<\/td>\n<\/tr>\n
Compound Interest and Impact of Compounding Frequency:\u00a0<\/strong>Interest on investments made in a FD compounds, and earns interest on the new balance after each compounding. The following formula explains this further:<\/p>\n

Where:
\nA<\/strong>\u00a0= Final Amount that will be received<\/p>\n

P<\/strong>\u00a0= Principal Amount.<\/p>\n

r<\/strong>\u00a0= Annual nominal interest rate.<\/p>\n

n<\/strong>\u00a0= number of times the interest is compounded per year.<\/p>\n

t<\/strong>\u00a0= number of years<\/td>\n

Compound Interest and Impact of Compounding Frequency:\u00a0<\/strong>Most banks that offer Recurring Deposit usually compound interest on a quarterly basis. Compound interest is interest that is added to the principal amount so that from then on, the interest that has been added also earns interest. This addition of interest to the principal is called compounding.<\/p>\n

The following formula gives you the total amount one will get if compounding is done:<\/p>\n

Where:<\/p>\n

M<\/strong>\u00a0= Maturity value.<\/p>\n

R<\/strong>\u00a0= Monthly instalment.<\/p>\n

n<\/strong>\u00a0= Number of quarters.<\/p>\n

i<\/strong>\u00a0= Rate of interest\/400.<\/td>\n<\/tr>\n

Renewals and withdrawals of Fixed Deposit Accounts:<\/strong><\/p>\n
    \n
  • Rolling over of deposits for another term where term, in which the tenure can differ.<\/li>\n
  • Auto-renewal: The tenure of deposit doesn\u2019t change, but the interest rate depends on the prevailing interest rate at the time of renewal.<\/li>\n
  • Deposits can be encashed at maturity.<\/li>\n
  • Premature withdrawals are subject to penalties.<\/li>\n
  • Amounts being withdrawn above Rs.20,000 must be transferred to the depositors savings bank account.<\/li>\n
  • Amounts being withdrawn below Rs.20,000 can be taken in cash.<\/li>\n
  • For sweep-in facility and flexi-deposits, withdrawals are allowed on the interest accrued by the FD, the balance will then be held as a new deposit.<\/li>\n
  • No withdrawals are allowed for a minimum of 5 years in the case of tax-saving deposits.<\/li>\n<\/ul>\n<\/td>\n
Renewals and withdrawals of Recurring Deposit Accounts:<\/strong><\/p>\n
    \n
  • During the premature closure of the RD for reinvestment in a term deposit, interest will be paid to the account holder without reducing interest rate by 1% (as penalty).<\/li>\n
  • If the account holder does not stay with the bank after prematurely closing the account, the interest rate will be (whatever the interest rate was, minus 1% as penalty).<\/li>\n
  • Partial withdrawals are not allowed for RDs, but some banks offer a loan facility against the RD, where the RD must be pledged as collateral.<\/li>\n
  • Premature withdrawals are possible, but the rate of interest will be less than the base rate (which is around 8.40%).<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
Nominations under Fixed Deposit Schemes:<\/strong><\/p>\n
    \n
  • A nominee is the person named to receive the funds accrued in a particular FD upon the depositor\u2019s death.<\/li>\n
  • Nominee details required: Name, age, address, relationship with depositor, details of legal guardians.<\/li>\n
  • Only one nominee per deposit account.<\/li>\n
  • Proof of depositor\u2019s death required to claim funds.<\/li>\n<\/ul>\n<\/td>\n
Nominations under Recurring Deposit Schemes:<\/strong><\/p>\n
    \n
  • A nominee is the person named to receive the funds accrued in a particular RD upon the depositor\u2019s death.<\/li>\n
  • Nominee details required: Name, age, address, relationship with depositor, details of legal guardians.<\/li>\n
  • Only one nominee per deposit account.<\/li>\n
  • Proof of depositor\u2019s death required to claim funds.<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
Loan against Fixed Deposit<\/strong><\/p>\n
    \n
  • Loans can be availed by keeping your FD as collateral.<\/li>\n
  • Loans are given as an alternative to those who need funds, but do not wish to break the deposit account prematurely.<\/li>\n
  • Most banks allow for loans in the range of 70% – 90% of the deposit value.<\/li>\n<\/ul>\n<\/td>\n
Loan against Recurring Deposit<\/strong><\/p>\n
    \n
  • Loans can be availed by keeping your RD as collateral.<\/li>\n
  • Loans are given as an alternative to those who need funds, but do not wish to break the deposit account prematurely.<\/li>\n
  • Banks offer loans for up to 90% of the deposit value.<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n
Income Tax on FD<\/strong><\/p>\n
    \n
  • Income on FDs is taxed as per the depositors tax slab.<\/li>\n
  • Interest on FDs is calculated on an annual or cumulative basis, but it\u2019s taxed on an accrual basis \u2013 revenue is recognised when earned and expenses are recognised when incurred.<\/li>\n<\/ul>\n<\/td>\n
Income Tax on RD<\/strong><\/p>\n