FD Vs Recurring Deposit Investment
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The difference between fixed deposit and recurring deposit is based on their features, deposit requirements, tenure, interest rates, benefits, and limitations, among other things. In this blog, we will learn about recurring deposits and fixed deposits, their benefits and features, as well as the key differences between a fixed deposit and a recurring deposit account.
What is a Recurring Deposit Account?
A recurring deposit is a type of term deposit that banks offer to their customers. It enables customers with a consistent source of income to deposit a set amount of money into a recurring deposit account on a monthly basis. When the customer deposits the money, he or she becomes eligible to earn interest on it.
- Recurring deposit account requires one to submit the amount on a monthly basis for a pre-decided period
- A recurring deposit account encourages the saving habits of the people
- Recurring deposit accounts can be opened for short term, mid-term and long term periods.
- The interest paid by the bank will differ depending on the term chosen
- Banks provide various types of recurring deposits to regular individuals, children, senior citizens, and non-resident Indians (NRIs)
- The interest rates on various types of recurring deposits differ
- The time it takes to open a recurring deposit account varies by bank
- Banks allow you to close your recurring deposit account; however, you must pay a penalty for doing so
What are the Features of a Recurring Deposit Account?
Following are the features of a recurring deposit account that make it a preferable choice to save for the future-
- The monthly minimum amount to open a recurring deposit account is Rs. 500. (the amount might vary from one bank to another)
- The minimum tenure for opening a recurring deposit account is six months, with a maximum tenure of ten years
- An individual account holder can open multiple recurring deposit accounts
- Minors can open recurring deposit accounts, but they must be supervised by their parents or guardians
- Partial withdrawal of the amount deposited in a recurring deposit account is not allowed
- The automatic amount deduction feature helps in deducting a particular amount every month, instead of manually adding an amount to the recurring deposit account
- Senior citizens earn a higher rate of interest than people who have recurring deposit accounts.
- In case of withdrawing the premature money, a penalty has to be paid by the account holder
Recurring deposit accounts require account holders to deposit a specific amount every month rather than a lump sum amount all at once
What is a Fixed Deposit Account?
Fixed deposits are also referred to as “term deposits” or “time deposits.” It is a service provided by banks and non-banking financial institutions that provides investment instruments (NBFC). It is regarded as one of the safest ways to save for the future, among many others. FDs allow users to deposit a lump sum amount for a specific time period and receive interest either monthly, quarterly, or upon maturity. In addition to this, FD offers a plethora of other features to its users, such as-
- Customers can earn interest on their deposits for a set period of time
- Once locked in, the interest rate is unaffected by changes in the market or interest rates
- Customers have the option of earning interest either on a regular basis or at the maturity of their FD
- A fixed deposit amount cannot be withdrawn before the maturity date, and if someone does want to withdraw the amount, he or she must pay a penalty
What are the Key Features of Fixed Deposits?
Listed below are all the features of fixed deposits that you should know before investing in them-
The fixed deposit account requires lump sum one-time payment. The additional amount can be added as a new deposit
Fixed deposits offer guaranteed returns
The depositor can earn interest monthly, quarterly, annually or after the maturity date
Fixed deposits are a low-liquidity investment option
In comparison to most investment options, fixed deposit holders receive a higher rate of interest
The returns on deposits never get fluctuated by the market
Customers cannot withdraw the amount from the fixed deposit account before the maturity date. n the event of an emergency withdrawal or willful withdrawal, the amount can be withdrawn with a penalty to be paid
Customers can reinvest the fixed deposit amount after maturity
There is no cap on the maximum limit of the amount that can be deposited
Conclusion
The above-mentioned features, the process has defined the difference between fixed deposit and recurring deposit. A fixed deposit account is ideal for those who want to lock in a specific amount of money for a set period of time, whereas recurring deposits are suitable for those who have a consistent source of income. Despite their many differences, the goal of such accounts is to encourage an individual’s savings habits. As a result, choosing one over the other should be done by comparing the services provided by different banks, interest rates, lock-in period, as well as the individual goal to achieve and personal needs.
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