The development of wealth requires adhering to strict discipline. To expand for some time, capital must be systematically set aside. The set of features and incentives comes with any way of investing, whether you want to invest in the stock market, commodity market, mutual funds or even opt for cautious investment strategies, such as fixed and recurring deposits. Most people start with small monthly deposits in a recurring deposit, converting into a fixed deposit upon maturity.
We will compare these safe and secure approaches in this write-up and explain these investment methods in detail.
What are the key differences?
Investors put away their unused funds in an FD and earn a specific interest rate that is higher than the interest paid when in the savings account the money is. RDs, on the other hand, allows one to introduce a disciplined habit of saving a fixed amount of money per month. A banking app can easily do it.
An FD is for a minimum of seven days with a maximum length of almost 10 years. In the RD account, however, the minimum duration is six months, and the maximum period of tenure is ten years.
Depositors have the option to roll over a deposit for another term in fixed deposits that may differ from the original duration chosen. The bank will auto-renew the deposit after maturity if you do not withdraw. Based on the bank's prevailing interest rate, the interest rate might be lower, higher, or the same. However, if you want to cancel the deposit before the maturity date, you must pay a particular penalty.
Concerning renewals and withdrawals of RDs, an RD investment may be closed and reinvested in a term deposit before the chosen term; the account holder can still receive an interest rate, with a penalty reduction of a per cent. Besides, partial withdrawals are not allowed on recurring deposits. Like FDs, if you urgently need money, you can take out a loan against your recurring deposit account instead of dividing the deposit and withdrawing the cash.
Both FDs and RDs are taxed, i.e., both investment plans are taxable for interest gained. In RD's case, the payment of TDS is not compulsory, but the interest received must be declared by the person when the income tax return gets filed. The account holder will have to pay TDS if the fixed deposit balance's interest is more than 10,000. This cap has been updated to INR 40,000 since April 1, 2019. If the PAN is presented, the payable TDS is 10 per cent, if not, then 20 per cent TDS is payable.
