Difference Between FD and RD: Which is Better Option

As an investor, the current economic scenario is exactly the situation one dreads in the investing world. The FD interest rates in 2019 had been falling repetitively and 2020 seems to follow the same trend. Central banks across the world are cutting the growth estimates with newer issues owing to COVID-19 epidemic. Thus, the task for you as an investor is cut out – to determine the best possible investment solution for your money while the rates are still reasonably high.

The FD vs RD Debate

If you are unsure which one to go for FD vs. RD, look at the following points below to determine –

1. Purpose – The fixed deposit is usually done to invest a lumpsum at one go. It can be a great way to immediately start earning from the large amounts received from earlier investments such as EPF/PPF/Gratuity. An RD is usually to ensure a fixed amount is invested each month.
2. Benefits – An RD will ensure you stay in the habit of disciplined investing of a fixed amount each month. Thus, once your deposit each month is debited automatically, you can use the remaining money for your needs. An FD will ensure you can achieve a higher rate of interest on a higher base capital.
3. Interest Earnings – The entire period of tenor is used for compounding interest on the capital invested. Thus the deposit amount will earn interest over the entire tenor in an FD. Whereas in an RD, only the first deposit will be compounded over the entire tenor whereas the time period for each deposit will keep reducing for compounding. Thus, the overall interest earned will be slightly less than in an FD.

A Better Alternative to an RD

To overcome the issues of an RD, Bajaj Finance offers people a Systematic Deposit Plan (SDP) for people who have just started earning and wish to make a limited number of monthly deposits but want to keep their investments earning a fixed interest rate. This is a plan where you can decide the tenor from 12 to 60 months and also decide the number of deposits you will make from 6 to 48.

Thus, you are not bound by the monthly deposit like in an RD. Instead you can make the deposit when you have the surplus cash. Bajaj Finance FD currently offers one of the highest interest rates of 8.05% for a 60-month cumulative FD. You can start with a deposit of Rs. 5,000 and choose to make subsequent deposits on one of these dates in the month – 3rd, 7th or 12th.

Each deposit is like a new FD and the interest rate prevailing on the date of deposit will be applicable on that particular deposit. You can also avail a loan on the SDP as per guidelines under the RBI. You will be making payments via a NACH mandate which will make your deposits easy and avoid non-payment.

These deposits also let you avail the high stability ratings of Bajaj Finance FD backed by CRISL and ICRA. This means your investments will earn assured returns irrespective of the market conditions.