Fixed Deposits Vs Recurring Deposits: SBI, ICICI Bank Vs AU Small Finance Bank, Suryoday Bank

Investment of surplus money can be restricted to fixed income instruments when the goal is to avoid risk. That is a common view shared by many financial planners. Fixed income instruments, such as bank fixed deposit or bank FD and recurring deposit or RD, provide a fixed return. On a fixed deposit or recurring deposit of less than Rs 1 crore today, one can earn a return in the range of 5.5-7.75 per cent over a tenure of six months. FD and RD are two common types of fixed income instruments, wherein an investor earns an interest rate depending upon his or her choice of tenure. Fixed income products are different from equity-related instruments, such as mutual funds, which offer market-related returns and come with market risks. (Also read: When to pick mutual fund over bank FD?)

Fixed deposit vs recurring deposit: which one to pick?

While fixed deposit is meant for an investor with a corpus of surplus money, that is extra cash that one has after meeting all liabilities and cash payments due at a particular period, recurring deposit is more suitable for someone not in possession of a sum of idle money but has a regular source of income, say experts. Just like a fixed deposit, a recurring deposit enables a person to enter into an agreement with the bank to deposit a sum on regular intervals. For example, an investor having Rs 1 lakh of surplus cash may go for a fixed deposit for the desired term. On the other hand, someone not in possession of that kind of lump sum at a time may set up a recurring deposit of, let's say, Rs 8,000 per month.

FD vs RD: which offers better return?

"Both FDs and RDs are types of fixed investments which are offered by all major banks and financial institutions... Generally, FDs have slightly higher interest rate over RDs," said Abhimanyu Sofat, head of research, IIFL.

Once you have made up your mind about which way to invest, the next step is to select a bank.

"While investing in FDs and RDs of banks, investors should check the interest rates across different banks and features offered by them," added Mr Sofat.

Here's a comparison of interest rates (returns) offered by different banks on fixed deposits and recurring deposits of up to Rs 1 crore:

State Bank of India (SBI) term deposit interest rates (applicable to FD as well as RD)

ICICI Bank fixed deposit interest rate

(Also Read: Bank Fixed Deposits Vs Corporate Fixed Deposits: Interest Rates, Taxation, Risks)

ICICI Bank recurring deposit interest rates

(Also Read: Recurring Deposit (RD) Interest Rates Of These Banks Are As High As 9%)

Meanwhile, small finance banks often provide higher returns on fixed income products.

AU Small Finance Bank fixed deposit interest rates

AU Small Finance Bank recurring deposit (RD) interest rates

Suryoday Bank fixed deposit interest rates

Suryoday Bank recurring deposit interest rates

One can make a decision primarily on the basis of interest rates and tenure while setting up a fixed deposit or recurring deposit at a bank, say experts. “Both FD and RD offer more or less the same features. So, a salaried person can invest in RDs since he/she receives regular income while a person having lump sum amount can invest in FDs,” Mr Sofat of IIFL further said.