Regular Fixed Deposit vs Recurring Deposit: Deciding Between the Two with 5 Key

Posted by John Judge on November 19th, 2020

Saving is beneficial for every individual when it comes to long-term financial planning. When you think about saving for the future, the first option which pops into mind is the bank savings account. However, you can also choose to make a deposit with a bank that offers a better interest rate than a savings account.

Often investors get confused between the two common instruments of deposits available: fixed deposits and recurring deposits. Therefore, before making a decision, it is crucial to understand the difference between the two, which would help investors choose an option that best suits them.

Let us learn the key differences between the two investment instruments.

1. The Meaning: Fixed deposits (FDs) are ones in which investors have to deposit a lump sum. They get back the amount along with interest accrued after the mentioned period. On the other hand, recurring deposits (RDs) are like a bank account in which a fixed amount has to be deposited within short intervals for a long time. Hence, fixed deposits require single-time investment, whereas recurring deposits demand recurring investments. The deposits in an RD are usually made monthly, and the interest on each instalment is calculated from the date of deposit to the date of withdrawal.

Thus, if you have a lump sum to invest, an FD might be the right option, but if you want to start small and grow gradually, go for a recurring deposit.

2. Minimum Amount to be Deposited: In the case of regular fixed deposits, the minimum amount of investment is Rs. 1000. On the other hand, in recurring deposits, the minimum amount of deposit is Rs. 100. The lower deposit rate in the case of recurring deposits makes this option better for lower-income groups.

3. Payment of interest: In fixed deposits, you can choose a suitable interest pay-out option. You can either avail their interests at monthly or quarterly intervals in place of compounding. On the other hand, interest is only paid at the time of maturity for recurring deposits.

4. Tenure: Fixed deposits can be opened for a minimum of 7 days and a maximum of 10 years. On the other hand, recurring deposit accounts must be opened for a minimum of three months. The maximum tenure of an RD is 10 years. Thus, if you plan to keep your money for less than 3 months, FDs might be a better choice.

5. Eligibility Criteria: The eligibility criteria for both these saving schemes are different. Only Indian resident individuals (having a linked savings account) and non-resident individuals are eligible to open a recurring deposit account. Companies and firms can’t avail of the benefits of this scheme. On the other hand, the eligibility criteria for a regular fixed deposit allows sole proprietorship firms, partnership firms, limited companies, and trust accounts to invest apart from resident Indians.

Which is Better?

These are the key differences between fixed deposits and recurring deposits. Both methods are suitable when it comes to financial savings. However, every individual must go through the features and benefits before choosing the best plan for themselves. This will help them attain their desired financial goal easily.