If you are beginning to work and want to start saving money for your future needs, depositing at your bank is the best way to get started. The money in the deposit earns a higher interest rate than a Savings Account, allowing you to put away money for needs such as creating an emergency fund or fulfilling an aspiration such as travel. A Fixed Deposit is easy to open and invest in.
You can complete the procedure through the Banking app within minutes. You skip branch visits and arrange for physical documentation prone to damage and loss. It is easy to liquidate but with a premature withdrawal penalty. The money grows while you earn interest. A Recurring Deposit is a fixed interest and fixed tenure monthly savings instrument. They also give you the same interest for the entire tenure, agreed upon at the start.
RDs allow a depositor to save in instalments, i.e., a fixed amount deducted monthly from your Bank Account.
Interest rates
Both these deposits are non-market linked fixed return financial instruments. Before opening them, match the features and check which fits well with your goals. An FD Account provides interest at a fixed rate for the deposit term. Upon completion, the deposit matures, and the funds return to you. Fixed Deposit interest rates are fully taxable. The interest income adds to your total income and attracts taxes per the applicable slab rate.
If interest income during a financial year is above Rs 40,000, it is subject to the Tax Deduction at Source. On the contrary, there is no tax-saving RD product. Most banks allow interest on the maturity of the deposit.
Which one is ideal?
The choice of FD vs RD solely depends on how much fund is available to you at the time of investment. If you have a hefty fund to invest in for a definite tenure, choose Term Deposits as they offer greater compounding benefits. If you expect a fixed monthly saving from your income for the future, then investing in RD online helps you generate higher returns. Both the Deposit Accounts are identical in terms of tax applicability.
While Fixed Deposits are lump sum investments, they allow greater interest returns than RDs. On the other hand, RDs are suitable for risk-averse investors looking to build a corpus by saving in instalments over a period. Compare the rates offered by several banks online and assess your financial status before opening them.
Conclusion
With so many banks adopting digital methods, it has become convenient and quick for customers to open Deposits and Bank Accounts. You must ensure these Deposit Accounts link to your Savings Account.