Savings have a special significance in every person’s life. However, just depositing money in a cupboard or safe is not considered complete. Savings are true only when you get interest on them. For this, many investment products are available in the market. Some investment instruments, like the stock market or mutual funds, are full of risk. At the same time, Fixed Deposit (FD) and Recurring Deposit (RD) are such instruments that are considered safe investment options.
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What is FD and how to invest in it
In a Fixed Deposit, i.e., FD, a lump sum amount is deposited in a bank or financial institution. Investors can choose a period of 7 days to 10 years as per their convenience. The most special thing about FD is that the investor gets the interest rate and period fixed at the beginning itself. This makes the investment completely safe and with assured returns. Interest on FD is usually received on maturity, making it a better instrument for long-term savings.
What is RD, and for whom is it better
Recurring Deposit, i.e., RD, is a good option for those who cannot invest a lump sum amount. In this, a fixed installment has to be deposited every month. The duration of RD can be from a minimum of 6 months to a maximum of 10 years. The interest rate in this is usually slightly higher than the FD. Also, interest keeps getting added on a quarterly or monthly basis. This scheme is suitable for those investors who want to gradually build a large capital from small amounts.
Main difference between FD and RD
The biggest difference between FD and RD is in the method of investment. In FD, the investor has to deposit a lump sum amount, whereas in RD, installments have to be paid at regular intervals. If you have a large amount that you want to keep safe, then FD is the right option. But if you want to save a little bit from your income every month, then an RD is suitable for you. If seen at present, the interest rate on RD is slightly higher than FD.
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Which option is better for investors
If the investor already has a large savings amount, then an FD is the best and safest option for them. On the other hand, for those who want to develop the habit of regular savings or whose income is limited, RD can be more beneficial. In both options, the principal amount remains safe and assured returns are received, which makes them different from other risky investment options.