When it comes to saving money in deposit-schemes, often people get confused as to what saving-instrument to choose ?? Should they go for Fixed Deposits (FD) or should they park their money in Recurring Deposits (RD) ?? This tutorial attempts to answer those questions and doubts, which people may be having in their mind with respect to these deposit-schemes.
FD(Fixed Deposit) is suitable for someone, who has some lump-some amount and want to invest it for a specific time interval. Interest rate depends upon the maturity period, longer the period greater the interest rate. You can opt either for periodical returns, say monthly/quarterly/half yearly or annually, or simply opt to get the amount with accumulated interest at the end of the prescribed term. Premature and partial withdrawal facilities are available, but not without some penalty, that you have to pay at the time of withdrawal. This penalty amount varies across banks, so you may want to check this out with individual banks, before opting for opening an FD(Fixed Deposit). There will be a TDS (Tax Deductible at Source) applicable to your maturity amount, if the interest paid on your deposit exceeds Rs.10000/- per year. This is fixed by government to be 10% of interest amount plus 3% Education Cess.
But if you don’t have a lump-sum amount, that you could possibly invest in one-shot, FD(Fixed Deposit) is a no-no. But if you have a regular income every month (say a salaried individual) and want to save a certain fixed amount for a specific time interval, then RD(Recurring Deposit) is a better option for you. But you need to be sure of the fact that you will be able to pay that fixed amount every month. One of the major drawbacks with Recurring Deposits is non-flexibility of the amount-of-deposit. Partial payment is not allowed nor you can pay more than the decided amount. Here again, interest rate depends upon the maturity period, longer the period greater the interest rate. FD(Fixed Deposit) generally gives more returns,when compared to RD(Recurring Deposit). Premature withdrawal is applicable but some penalty you have to pay. Partial withdrawal is not applicable. As per Income Tax Rules, there is no TDS (Tax Deductible at Source) applicable on RD(Recurring Deposits).
Both of them have their pros and cons and it solely depends on your requirements and your financial planning, to identify which one is better for you ?? After all its your money, is not it ;-)