A fixed deposit or an FD is a financial product which lets you invest an amount of money in a bank or a non-banking finance company (NBFC) for a selected tenor. An amount is invested in FD account for a specific tenor to earn a sure-shot and a higher fixed deposit interest rate compared to a savings account at maturity.
On the other hand, a term deposit which is commonly known as a recurring deposit or RD is also an investment scheme where a fixed amount is invested each month to earn a fixed interest. Compared to FDs, the interest rate and the return on investment (ROI) of a term deposit are less than an FD.
If you are confused which one to choose between a term deposit and a fixed deposit if you have an investment to make, here are some quick insights into their differences.
A quick look at the basic term deposit and fixed deposit differences
Periodic Investment vs. Lump Sum Investment
A fixed deposit is a great scheme for those who have saved some money, and want to invest for a shorter period. A term deposit, on the other hand, is best for those who are ready to invest a smaller amount monthly for a long or short period.
Tenor or Period of Investment
A tenor is nothing but the duration that investment takes for it to grow and mature.
Traditional fixed deposit let investor lock-in money ranging from 7 days to 10 years. A term deposit has a tenor ranging as wide as 1 year to 10 years. Fixed deposits are a one-time investment, and term deposit needs continuous investment.
Rate of Interest
The interest rate for fixed deposits and term deposits differ with the investment amount and scheme selected. The more you put in money in an FD, the more it should grow and mature. The maturity of the term deposit is unaffected by a number of deposits made. Overall, a fixed deposit offers more ROI or interest profit than a term deposit upon maturity.
Maximum Investment Amounts
Maximum investments are nothing but the limits that lenders put on deposits.
Generally, the maximum amount for FDs is Rs.1.5 lakh and for term deposits its Rs.15 lakh. However, the amount can vary from lender to lender as some NBFCs can also offer up to Rs.1 crore as the maximum FD investment.
ROI is nothing but the interest that your investment can earn over a tenor. For FD, the ROI could be as high as 7.85% for standard people and 8.20% for senior citizens. For term deposit, the ROI could range between 5.25% and 7.90%.
The Bottom Line – Wrapping It Up
Now that the vital differences between the term deposit and fixed deposit are known to you, it is your choice to decide and invest in a scheme as per your need and affordability! Happy investment!