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

fixed deposit

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.

Fixed Deposit- Fix it and Forget it

Investing in something is as important as earning money. The world is getting competitive with the continuous increase in our needs. In such a scenario, one has to make sure that their financial conditions are stable and cater to their present as well as future needs. While investing in something has its benefits, it is also associated with certain levels of risk. Also, it is important to make a comparative study between the amount you put and the amount you get in return.

When it comes to investment, there are a number of options available. Bonds, stocks, real estate, funds, bank deposits are some common investment options in India. However, the Fixed Deposit is the most popular form of investment. Let us tackle some questions related to Fixed Deposit Investment:

What is a Fixed Deposit (FD)?

Well, a Fixed Deposit is a type of deposit in which the investor deposits a certain amount of money (as per his wish) for a certain period in a financial company. By opening a fixed deposit account, the investor can earn money from the interest rate offered by the financial institution on the amount deposited by him.

Should Someone take a Loan and then Invest in Fixed Deposit?

Now when it comes to investment, people might consider taking a loan and then invest the amount into something else. When you decide to take a loan for making an investment, a personal loan is the only option you have. However, personal loans are provided only to salaried individuals with a decent credit record and reputation. Here are some points supporting the argument that taking a loan for investing in fixed deposits is not a wise move:

Interest Rate: Personal loans being unsecured loans charge a much higher interest rate. The interest rates are around 12% onwards and are much higher than other loans. An investment in fixed deposits offers an interest rate of 7-8%, much lower than that being charged on the loan you are planning to take.

Cost and Benefit Analysis: Be it taking a loan or investing in something, the purpose is to save and benefit from the investment. Investing in fixed deposits by taking the personal loan would not be beneficial as it will not allow you to pay off the loan easily and you will be stuck with paying EMIs. Hence, in the end, you will be paying more and getting much less in return, which is not why you took a loan for.

error: Content is protected !!