When it comes to savings and investing, most of the risk averse people love to invest in bank deposits. And many gets confused between Recurring and Fixed deposits offered by banks.
Recurring Deposits (RD) and Fixed Deposits (FD) have same features in terms of safety, maturity and interest rate. Even the tax applicable is same on the amount invested. Click to know smart ways to save on TDS from fixed deposits in India.
Earlier, the difference lies in the nature of tax deduction. In a fixed deposit, banks deduct TDS if the interest income in a year exceeds Rs 10000 but there is no TDS deduction in recurring deposit.
In the Union Budget 2015-16, it was notified that TDS was deducted on fixed deposits if the interest exceeded Rs 10,000, the same would now be applicable to recurring deposits.
So, the big question is which one to invest and when?. When we compare both the deposits, FD tends to give us higher returns. Let us see how:
|Fixed Deposit||Recurring Deposit|
|Invested Amount in Rs||24000 ||2000 p.m.|
|Interest Rate (p.a.)||9% compounded quarterly||9% compounded quarterly|
|Total Interest earned in a year (Rs)|| 2234 ||1195|
|Total Amount after One Year (Rs) ||26324||25195 |
|Difference (Rs)||1039 |
As you can see, Fixed deposits earn more when compared to Recurring deposits.
When to Invest in RD/FD?
Fixed deposits are better for someone who has lump sum amount and may not need for a period of time. Interest rate depends upon the maturity period, longer the period greater the interest rate.
In bank fixed deposits, the TDS (Tax Deductible at Source) is applicable on the maturity amount. If the interest paid on your deposit exceeds Rs.10000/- per year, TDS is deducted. Click to know about bank fixed deposits.
In case, you do not have lump sum amount and looking for monthly savings than RD is for you. Interest rate depends upon the maturity period, longer the period greater the interest rate. Click to know why recurring deposit is the best bet?