How is Fixed Deposit different from Recurring Deposit
There are many investment options available in the market for people who wish to invest their money. However, they should first study the various investment options, compare them, and then select the one that is most suited for them. Term deposits are the most famous, preferred and popular investment options across India. People prefer these investment tools as their money is safe and secure in the bank. Also, they earn interest on their investment.
There are two types of Term deposits, namely, Recurring Deposit (RD) and Fixed Deposit (FD).
Let us learn in detail what is Recurring Deposits and Fixed Deposits.
What is a Fixed Deposit?
A Fixed Deposit is one of the Term Deposits offered by the banks. This is the safest and most popular investment option. According to this, one has to invest a lump sum amount at one time in a bank. It isn’t necessary to open a separate account for a Fixed Deposit, but it can be linked to one’s existing Savings Account. The tenure of the FD and the interest that the bank will pay will be decided at the time of opening the FD Account.
What is a Recurring Deposit?
Recurring Deposits are another popular investment option offered by banks. Like FDs, RDs too, are safe and secure. However, it is best suited for salaried people and those with a low annual income. According to this investment option, an individual has to deposit a fixed amount of their income every month for a pre-determined tenure. After maturity, the principal amount is returned along with interest earned. Having to deposit money on a regular basis, also helps one to develop the habit of saving.
Recurring Deposits and Fixed Deposits: Let’s study the differences between RDs and FDs
If a person intends to invest a lump sum amount at one time, then he can to do so in a Fixed Deposit which is provided by any bank or financial institution.
A person who can afford to invest a small prefixed amount of money every month can do so in Recurring Deposits in any bank or financial institution.
Here, the tenure ranges from 7 days to 10 years. It is upon the individual to choose the tenure period.
The tenure ranges from 6 months to 10 years. The individual has to choose the tenure period.
3. Interest amount:
The interest amount earned at the end of maturity of a Fixed Deposit is higher than the interest earned on an RD.
The interest amount earned is lesser than the interest earned on an FD.
The interest gets credited on a quarterly /monthly or on maturity
The interest earned on an RD is paid on maturity along with the capital amount.
5. Loan facility:
A person can avail loan against his Fixed Deposits. The loan amount can differ, and the maximum limit can be 90% of the value of the Fixed Deposit.
Loan facility is also available for Recurring Deposits. The maximum limit is up to 90% of the deposit amount value.
6. Motivating factor:
A person with a surplus amount can invest in a Fixed Deposit plus earn money as interest.
Recurring Deposit enables a person to invest a fixed amount of money at regular intervals. This automatically will instil the habit of savings in a person.
7. Default clause:
A person cannot default in payment as it is done once at the beginning with a lump sum amount.
If a person fails to make the payment of instalments for six consecutive months, then the bank has the right to close such Recurring Deposit account.
So, now that you know what is Recurring Deposits and Fixed Deposits, which one will you invest in?
You can read more about the difference between Recurring Deposits and Fixed Deposits here.
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*Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.