Share which type of deposit earns higher interest?
Hi Ayushmaan,
Both fixed deposits and recurring deposits can offer the same nominal interest rate. For example, currently Suryoday Bank provides an interest rate of 8.40% on both deposits. However, even at the same rate, FDs usually generate higher overall returns than RDs.
In an FD, you invest the entire lump sum at the start of the tenure. Your entire amount earns interest for the entire period, maximising the total return.
In an RD, you deposit a fixed amount every month. Each instalment earns interest only from the month it is deposited. This means that later deposits have less time to grow, resulting in a slightly reduced effective yield compared to an FD.
For example: If you invest ₹1,20,000 in an FD for 1 year at 8.40%, the interest you earn will be ₹10,081. Do not just take my word for it. Use an FD calculator and see for yourself.
However, on using an RD calculator, you will notice that an RD of ₹10,000 per month for 12 months at the same rate would earn you a total interest of ₹5,562.
Thus, we can conclude that FDs are best when you have a lump sum to invest, while RDs are ideal for disciplined savings through monthly deposits.
And, even with the same rate, FDs still tend to deliver higher total returns than RDs.