Recurring deposits, also known as RDs, have become a popular investment option for regular savers. On the other hand, fixed deposits, known as FDs, have been a go-to option for safe and secure investments for years. Both investment options have their own set of benefits and drawbacks. Let’s compare the two and decide which investment option is the best for regular savers.
Fixed Deposits (FDs)
FDs are popular among investors who prefer a safe investment option to park their funds. It is a type of financial instrument that helps investors earn interest on their deposits for a specified duration. Banks, Non-Banking Financial Companies (NBFCs), and other financial institutions offer FDs to customers.
The Bajaj Finserv App is an excellent platform for fixed deposits. One of the benefits of using the app is that you can easily compare the FD rate of interest offered by different banks and NBFCs. Moreover, the app also allows you to track your investments, and you can opt for automatic renewal of your FD on maturity.
Benefits of investing in FDs
Assured returns: When you invest in FDs, you receive a guaranteed interest rate. The interest rate offered by banks and NBFCs is usually higher than the regular savings account interest rate. As an investor, you can calculate your expected returns on investment in advance.
Low risk: FDs are one of the safest investment options available in the market. Unlike equity and mutual funds, the returns from FDs are not dependent on market fluctuations. The principal amount invested in FDs is also insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC) up to Rs 5 lakhs.
Flexible tenures: You can choose the duration of your FD as per your requirements. Banks and NBFCs offer FDs for a minimum of 7 days to a maximum of 10 years. You can also choose to break your FD before maturity, but you may have to pay a penalty.
Drawbacks of investing in FDs
Low liquidity: FDs are not a liquid investment option. If you need cash urgently, you may have to break your FD before maturity and pay a penalty. This makes it difficult for investors who require frequent access to their funds.
Low returns: The interest rates offered on FDs are subject to taxation. Moreover, the interest rates are relatively low compared to other investment options in the market.
Recurring Deposits (RDs)
RDs are a type of investment option wherein an investor deposits a fixed amount of money every month for a specific period. The interest rate offered is similar to that of FDs and is dependent on market fluctuations. Banks and NBFCs offer RDs to investors.
Benefits of investing in RDs
Disciplined savings: RDs help regular savers inculcate the habit of disciplined savings. An investor can deposit a small amount every month which adds up and can be used for specific financial goals.
Low risk: Like FDs, RDs are a low-risk investment option. The principal amount is also insured by the DICGC up to Rs 5 lakhs.
High returns: The interest rates offered on RDs are usually higher compared to regular savings accounts. Moreover, the interest earned is not subject to taxation if the total interest income does not exceed Rs 40,000.
Drawbacks of investing in RDs
Low liquidity: RDs are also a less liquid investment option. You cannot withdraw the entire amount before maturity, and in case of early withdrawal, you may have to pay a penalty.
Market fluctuations: Though the interest rate is fixed for the duration of the investment, the rate of interest offered on RDs is subject to market fluctuations.
FDs vs. RDs: Which is the best investment option for regular savers?
Both FDs and RDs are excellent investment options for regular savers. The decision to invest in either of the two depends on your financial goals and risk appetite.
When to invest in FDs?
If you are looking for a safe and reliable investment option, FDs can be the best option for you. FDs are ideal for investors who have a lump sum amount to invest and want to earn a guaranteed rate of interest. Additionally, if you do not require frequent access to your funds, FDs are an excellent investment option.
When to invest in RDs?
RDs are ideal for regular savers who wish to inculcate the habit of savings regularly. RDs help you save money every month, which can be used for specific financial goals. Moreover, if you do not wish to invest a lump sum amount at once, RDs are an excellent option for you.
Other investment tools than FD and RD
When it comes to investing, Fixed Deposits (FDs) and Recurring Deposits (RDs) are often the go-to options for many individuals due to their perceived safety and stability. However, there exists a plethora of alternative investment tools beyond these traditional avenues that offer different levels of risk and potential returns.
One such option is mutual funds, which pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Mutual funds offer professional management and the potential for higher returns compared to FDs and RDs, albeit with higher risk.
Stocks are another popular investment vehicle, representing ownership in a company. While investing in individual stocks can be risky due to market fluctuations, it also offers the potential for significant returns over the long term. Diversification through investing in a range of stocks can help mitigate risk.
Real estate is a tangible asset class that can provide both rental income and capital appreciation. Investing in real estate can offer diversification to a portfolio and serve as a hedge against inflation.
For those seeking a more hands-off approach, robo-advisors and exchange-traded funds (ETFs) offer automated investment solutions that utilize algorithms to create and manage portfolios based on individual risk tolerance and investment goals.
Ultimately, diversifying across a range of investment tools can help individuals build a well-rounded portfolio that balances risk and return to achieve their financial objectives.
Conclusion
Investing in either FDs or RDs depends on your financial goals and risk appetite. Both investment options have their own set of benefits and drawbacks. If you are looking for safe and reliable investment options, go for FDs. If you wish to inculcate the habit of saving regularly, opt for RDs. Use the Bajaj Finserv App to compare the rates of interest offered by different banks and NBFCs, track your investments, and opt for automatic renewal of your FD on maturity.