Key Difference Between Recurring Deposit and Savings Account
December 21, 2024
Both Recurring Deposits (RDs) and Savings Accounts are a must-have fora better financial life. In case you’re just starting out in your financial journey and want to open a bank account (savings account) or RD, it’s important to know the difference between the two. In this article, we will compare RD vs. savings accounts, highlighting their features, benefits, and scenarios where each option excels
Key Differences Between RD vs. Savings Account
Here are the key differences between recurring deposit vs. savings account for better understanding and to help you make the right choice.
| Feature | Recurring Deposit | Savings Account |
| Purpose | Encourages regular savings through fixed monthly deposits. | Provides easy access to funds while earning interest. |
| Interest Rates | Generally higher than savings accounts. | Typically, lower interest rates compared to RDs and FDs. |
| Investment Frequency | Fixed amount deposited at regular intervals (usually monthly). | Flexible deposits; can add or withdraw funds anytime. |
| Tenure | Fixed tenure (usually 6 months to 10 years). | No fixed tenure; funds can be accessed anytime. |
| Liquidity | Penalties for premature withdrawal. | High liquidity; easy access to funds without penalties. |
| Dependency | You need to have a bank account or savings account to open an RD. Standalone RD. | You can open a standalone Savings Account. |
| Tax Implications | No tax implications if the interest income is below ₹40,000 (₹50,000 for senior citizens) in a financial year. | You can claim a deduction of up to ₹10,000 on the total interest earned from all savings accounts held with banks, post offices, or cooperative societies during a financial year. |
Comparing the Advantages of Recurring Deposit vs. Savings account
1. Advantages of Recurring Deposits
- Disciplined Savings: RDs promote a habit of saving regularly, making them ideal for individuals looking to build a corpus over time.
- Fixed Interest Rate: The interest rate is fixed at the time of opening the RD, providing certainty in returns.
- Flexibility in Investment Amounts: You can start an RD with as little as ₹100 per month, making it accessible for those with limited savings capacity.
2. Advantages of Savings Accounts
- Liquidity: Savings accounts allow easy access to funds for daily transactions without penalties for withdrawals.
- No Fixed Tenure: There are no restrictions on how long you must keep your money in the account, offering flexibility based on your financial needs.
Convenience: Ideal for managing everyday expenses while earning some interest on your balance
Recurring Deposit vs. Savings Account: How To Choose Between The Two?
When choosing between RD vs. savings accounts it is important to note that both serve valuable roles in personal finance. Your choice should align with your financial situation, goals, and the need for liquidity. Ideally, you should have both. That said, you need to have a Savings Account to open a Recurring Deposit.
Final Thoughts
Opening a savings account is your first step towards financial independence. Adding RD to your portfolio propels you towards your financial goals – both short- and long-term.
Level up your financial game and take a step towards financial independence with Ujjivan SFB. Open high-interest Savings Accounts and Recurring Deposit with ease and keep your financial goals on track. Explore a wide range of deposit and savings accounts and select based on your preference.
FAQs
1. Are the interest rates for RDs fixed throughout the tenure?
Yes, the interest rates for RDs remain fixed throughout the tenure of the recurring deposit.
2. What factors should I look at when choosing the best savings option?
Understanding your financial needs and goals is crucial when selecting the best savings option. Each type of account has its unique advantages and limitations, making it essential to compare features like interest rates, liquidity, tenure, and potential tax benefits before making a decision.
3. Can I open both an RD and a savings account?
You can open a standalone bank account. However, to open an RD, you need to have a savings account.
4. When comparing RD vs. savings account which tend to offer superior returns?
When comparing RD vs. savings account it must be noted that recurring deposits tend to offer higher returns, because of the superior interest rates.
5. Can I withdraw money from my RD before maturity?
Yes, but premature withdrawals from an RD may attract penalties or loss of interest earned. It's advisable to check the terms and conditions of your RD before making any early withdrawals.
6. Can I link my savings account to other accounts?
Yes, you can often link your savings account to RD for easier transfers and management of funds. This setup can help you earn interest on excess cash while maintaining liquidity for daily expenses.
7. What should I consider when choosing a savings account?
When selecting a savings account, consider factors such as:
- Interest rates
- Minimum balance requirements
- Fees associated with account maintenance
- Accessibility (ATM locations, online banking features)
- Additional benefits offered by the bank
8. Is interest earned on savings accounts taxable?
Yes, the interest earned on savings accounts is taxable under "Income from Other Sources." However, individuals can claim a deduction of up to ₹10,000 under Section 80TTA if they are below 60 years of age, or ₹50,000 under Section 80TTB for senior citizens.
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