Usually, when one thinks about saving money regularly, the two most common methods come into mind: Recurring Deposits (RDs) and Systematic Investment Plans (SIPs). The savings of a small amount each month are the result of both, but the methodologies are totally different.
In case you are a person who receives a fixed salary and is looking for a risk-free way to accumulate wealth, you may ask which method is more suitable for regular savers. Let’s discover.
What Is a Recurring Deposit (RD)?
A Recurring Deposit is a secure savings scheme that is provided by banks and post offices. You will deposit the same amount every month for a selected duration, like 1, 3 or 5 years, and also get interest on it.
It is suitable for those investors who like to receive assured returns and don’t want to take any risks.
Key Features of RDs
- Amount of fixed monthly deposit
- The rate of interest is guaranteed and fixed by the bank
- The period ranges from 6 months to 10 years
- Safe investment option secured by banks
Example
If you set aside ₹2,000 each month in an RD for 3 years at an interest rate of 7%, you can expect to get around ₹78,000 at the end of the term.
What Is A Systematic Investment Plan (SIP)?
A Systematic Investment Plan (SIP) gives you the option to invest small amounts every month in mutual funds, mainly in equity or debt funds. Compared with RDs, SIPs do not provide fixed returns as they are dependent on the market. However, they do have the potential for faster growth in the long run.
Key Features of SIPs:
- Invest in mutual funds every month
- Earnings depend on the market performance
- Best for creating wealth in the long term
- Start with as little as ₹500 per month
Example
If you contribute ₹2,000 a month to a SIP that generates an annual return of 10%, after 3 years, you would have around ₹96,000. This is more than what you would get from an RD.
Recurring Deposit vs SIP: A Clear Comparison
| Factor | Recurring Deposit (RD) | Systematic Investment Plan (SIP) |
| Type of Investment | Fixed-income | Market-linked |
| Risk Level | Very Low | Moderate to High |
| Returns | 6–7% (fixed) | 10–15% (variable) |
| Liquidity | Lock-in period till maturity | Can withdraw anytime (after 1 year recommended) |
| Taxation | Interest is taxable | Tax depends on fund type and holding period |
| Best For | Conservative savers | Long-term investors |
Which Is Better for Regular Savers?
From the perspective of a regular saver, let’s analyse the situation of a person who deposits a fixed small amount every month.
Opt for a Recurring Deposit if
- You don’t want to take any risks.
- You want guaranteed returns at a certain time.
- You are okay with the basic and straightforward savings schemes.
Opt for SIP if
- You want to accumulate money quickly than bank savings.
- You are willing to accept the market volatility.
- You have a plan to invest for 3 years or more.
So, when comparing recurring deposit vs SIP, the right choice depends on your goals and risk comfort.
Understanding the Difference Between RD and SIP
| Aspect | RD | SIP |
| Returns Type | Fixed and predictable | Fluctuates with the market |
| Risk Factor | Minimal | Moderate to high |
| Ease of Start | Start at the bank easily | Start via mutual fund or app |
| Investment Flexibility | Fixed amount, fixed tenure | Can pause, increase, or stop anytime |
| Goal Type | Short-term savings | Long-term wealth creation |
Risk vs Reward: The Balancing Act
| RD | SIP |
| Low risk | High potential returns |
| Fixed income | Market-linked growth |
| Best for beginners | Best for goal-based investing |
Are RDs Safer Than SIPs?
Of course, RDs are safer without any doubt. The returns on RDs are fully guaranteed by banks, which means no market risk can affect them. For this reason, RDs can be considered as one of the safest investment options for first-time investors.
But, on the other hand, if you are relatively young and take the risk of holding through small ups and downs, SIPs are an investment worth considering for long-term growth.
How to Start Saving Today
| Step | Recurring Deposit | SIP |
| 1 | Visit your bank or open an online account | Choose a mutual fund or app |
| 2 | Set your monthly amount | Set your SIP amount and date |
| 3 | Choose tenure | Choose the investment period |
| 4 | Get a maturity certificate | Track performance monthly |
Conclusion
When it comes to the debate of recurring deposit vs SIP, it all depends on the financial position of the saver. A Recurring Deposit is best if you like safety, assured returns, and a predetermined maturity value. However, if you are willing to take some risk for possibly higher returns, then a Systematic Investment Plan (SIP) would be the more intelligent choice aimed at long-term growth. For consistent savers, the best way would be to use both RDs for security and SIPs for creating wealth.
