In the banking world, fixed deposits are broadly classified into two different types, TDR (Term Deposit Receipt) and STDR (Special Term Deposit Receipt). Both the terms have been popularized by the State Bank of India as it uses them to refer to its fixed deposit products.
Term Deposit Receipt
In TDR, the interest component is paid out to the depositor at regular intervals, like on a monthly, quarterly, semi-annual, or annual basis as per the investor’s choice. In this type of FD, the regular interest rate is offered on your fixed deposit.
In common terms, this FD is known as cumulative FD and has a minimum tenure of 7 days and a maximum tenure of 10 years.
The interest payout is credited to your savings bank’s linked FD account at a fixed date which can then be withdrawn for use as per your convenience.
Special Term Deposit Receipt
In STDR, which is also known as non-cumulative FD, the interest component is paid out along with the principal amount at the time of maturity of the fixed deposit. The interest earned on STDR on every quarterly calculation is reinvested, which helps you to reap the benefits of compounding.
Compared to TDR, STDR has a minimum deposit tenure of 6 months and a maximum tenure of 10 years.
The returns from STDR are always superior compared to TDR by a huge margin.
Let’s compare the difference in returns using an FD return calculator. A deposit of Rs. 10 lakh in TDR at 7% for five years will fetch you a monthly interest sum of Rs. 5,799 (Rs. 3,47,966 at the end of the tenure) and a quarterly interest of Rs. 5,833 (Rs 3.5 lakh at the end of the tenure).
The quarterly and half-yearly interest payout is always higher compared to monthly payout. It is because the interest calculation is done quarterly, and in monthly payout, banks credit the amount in advance.
In the case of STDR, the same amount will fetch you an aggregate interest amount of Rs. 4,14,778 at the end of the period, which is way higher than the TDR option.
Which One Is Better?
On comparing the basic features and returns of both the types of FD, STDR has the edge over TDR as it offers a higher interest yield on the investment. But, a single parameter cannot conclude the effectiveness or value of both TDR and STDR.
Both TDR & STDR serve different purposes for people with varied needs. In terms of suitability, TDR is the ideal investment instrument for individuals such as retirees and pensioners. It allows them to have a regular and steady flow of income from their savings to meet their daily expenditure.
On the other hand, STDR is a suitable option for those individuals who seek to grow their wealth or build a corpus by investing a lump sum amount to avoid the riskier asset class of equity and mutual funds.
Therefore, there is no right or wrong choice as both the types of FD have different objectives, and the investment choice is based on the need of the individual.