4/2/2015

BankFDv/s.BankRD.Whichisthebetteroption?

BankFDv/s.BankRD.Whichisthebetteroption?(09Dec2014)
Like

Tweet

Bank Fixed Deposits (FDs) and Recurring Deposits (RDs) are relatively safe investment options. FDs and RDs are safer than
equitiesastheyarenotmarketlinkedandprovideafixedrateofreturn.However,manyconservativeinvestorsareconfusedwhen
itcomestochoosingbetweenthese2options.PersonalFNisoftheviewthatbeforeyouinvestineitherofthese,itisnecessaryto
understandthemperfectly.

BankFixedDeposits
BankFDsaretermdepositswheretheinvestormakesalumpsuminvestmentandearnsahigherrateofreturnincomparisontoa
savingsaccount,foraspecifiedperiodoftime.Atpresent,therateofintereston1yearbankFDsrangesfrom7.75%to8.75%per
annum.TheinterestearnedonFDsistaxedasperonesincometaxslabonaccrualbasis.IftheinterestamountexceedsRs
10,000,thebankwoulddeducttaxatsource(TDS)attherateof10%p.a.
BankRecurringDeposits
BankRDsarealsotypeoftermdepositswheretheinvestormakesregularandfixedinvestmentseverymonthandearnsarateof
returnwhichissimilartothoseofferedbyBankFDs,foraspecifiedperiodoftime.TheinterestearnedonRDsistaxedasper
onesincometaxslabonaccrualbasis,butthereisnotaxdeductionatsource.
Nowyoumustbewondering,whatisthebasicdifferencebetweenbankFDsandbankRDs?
ThedifferencebetweenbankFDsandbankRDsisthereturnsearned.BankFDsgeneratehigherreturnsandthusaccumulate
greaterwealthfortheinvestorascomparedtoBankRDs.ThisismainlyduetothefactthatinaFD,youinvestalumpsum
amount,whichearnsinterestfor1entireyear(or12months).However,inaRD,onlythe1stdepositearnsinterestfor12months.
The2nddepositearnsinterestfor11months,the3rdfor10monthsandsoon.ThecompoundingeffectenablesbankFDsto
generatehigherreturnsfortheinvestor.
http://www.personalfn.com/knowledgecenter/financialplanning/tutorials/141209/bank_fd_v_s_bank_rd_which_is_the_better_option.aspx

1/3

4/2/2015

BankFDv/s.BankRD.Whichisthebetteroption?

Whatshouldyoudo?
PersonalFNbelievesthattheavailabilityandtheneedoffundsshoulddeterminewhichoptionyoushouldoptfor.Ifyouhavea
lumpsumamountwhichyouwanttoinvest,thenyoumayconsiderbankFDsastheygeneratehigherearningsfortheinvestoras
comparedtobankRDs.EvenwhileinvestinginanFD,youmustnotbetoocasualinyourapproachandanalysetheproductin
detail.
Ontheotherhand,ifyouareasalariedemployee,youmaybemorecomfortableinmakingsmallandfixedinvestmentsevery
month.Hence,insuchacase,aRDwouldbeamoresuitablechoice.PersonalFNisoftheviewthatincaseyouhaveahigherrisk
appetite,thenyoucanalsoconsiderSystematicInvestmentPlans(SIPs)inequitymutualfunds.SIPsnotonlyinstillinyouthe
habitofsavingregularlybutalsoenableyoutoearnhigherreturnsvisvisabankRDoveralongertimehorizon.

Share |

AddComment

3Responsesto
SD
Updatedon
Dec09,2014

OneimportantdifferenceandadvantagebetweenanRDandFDisthatthe
interestearnedinanRDisnottaxed.

GDayaSagar
Updatedon
Dec10,2014

ThanksforclarifyingthedifferencebetweenBankFDandRD.Iam
embrassedtotellyouthatthoughIcrossed65yrsandinvestedmanytimesin

bothRDandFD's,todayonlyIcametoknowthedifferenceofinterestearned
byaninvestor.Thanksonceagain.DayaSagar

Basawaraj
Updatedon
Dec10,2014

Therateofinterestissameonbothschemes.Whentheinterestratesare
fallingarelikelytofallinsuchscenarioinvestorwilldobetterbyopeningRD

accountbecausehewillbeearninghigherrateforextendedperiod.Thisis
advantageousevenforsmallinvestor.

RelatedArticles
MostPopularArticles
ThingstoKnowWhileYouCloseYourLoanAccount

(31Mar15)
HowtoManageYourFinancesduringaCrisis?(24

Mar15)
NotYetFiledYourIncomeTaxReturns?ReadThis!

(17Mar15)
IsInvestingInTheSukanyaSamriddhiScheme

3IntelligentPersonalFinanceThumbRules
3OptionsWhenYouCan'tPayYourEMIs
MutualFundRoundup:February2013
HaveaPPFAccount?ReadThis

http://www.personalfn.com/knowledgecenter/financialplanning/tutorials/141209/bank_fd_v_s_bank_rd_which_is_the_better_option.aspx

2/3

4/2/2015

BankFDv/s.BankRD.Whichisthebetteroption?

Worthwhile?(10Mar15)

TheComprehensiveCreditReportGuide

AreYouaResponsibleParent?(24Feb15)

Portfoliochurning:goodorbadforyourmutualfund?

8ExpectationsoftheaamaadmifromBudget201516

(17Feb15)

QuanutmInformationServicesPvt.Ltd.Allrightsreserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose
without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright
infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment
advicethroughthisserviceand,doesnotconstituteorisnotintendedtoconstituteanoffertobuyorsell,ora
solicitation to an offer to buy or sell financial products, units or securities. All content and information is
providedonan'AsIs'basisbyPersonalFN.InformationhereinisbelievedtobereliablebutPersonalFNdoes
notwarrantitscompletenessoraccuracyandexpresslydisclaimsallwarrantiesandconditionsofanykind,
whetherexpressorimplied.PersonalFNanditssubsidiaries/affiliates/sponsorsoremployees,personnel,
directors will not be responsible for any direct / indirect loss or liability incurred by the user as a
consequenceofhimoranyotherpersononhisbehalftakinganyinvestmentdecisionsbasedonthecontents
andinformationprovidedherein.Thisisnotaspecificadvisoryservicetomeettherequirementsofaspecific
client.Useofthisinformationisattheuser'sownrisk.Theusermustmakehisowninvestmentdecisions
basedonhisspecificinvestmentobjectiveandfinancialpositionandusingsuchindependentadvisorsashe
believesnecessary.Allintellectualpropertyrightsemergingfromthisnewsletterareandshallremainwith
PersonalFN.Thisisforyourpersonaluseandyoushallnotresell,copy,orredistributethisnewsletterorany
partofit,oruseitforanycommercialpurpose.Theperformancedataquotedrepresentspastperformance
and does not guarantee future results. As a condition to accessing PersonalFNs content and website, you
agreetoourTermsandConditionsofUse,availablehere.

GetaFreeGuidetoRetirementPlanning
JustsignupforourFreenewsletterFinancialNewsSimplified.
EnterYourEmailID

SignUpNow!

ReadourPrivacyPolicyandTermsOfUse.

http://www.personalfn.com/knowledgecenter/financialplanning/tutorials/141209/bank_fd_v_s_bank_rd_which_is_the_better_option.aspx

3/3