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Differences Between Fixed Deposit and Recurring Deposits

Writer: MyRupayaMyRupaya


The distinctions between fixed and recurring deposits should be understood.


The process of accumulating riches necessitates discipline. For wealth to increase, money must be put away in a methodical manner over time. Investing in the stock market, commodities market, mutual funds, or even conservative means of saving such as fixed deposits and recurring deposits all have their own set of characteristics and rewards. 


The majority of individuals start with tiny monthly contributions in the form of a recurring deposit, which they later convert to a fixed deposit when it matures. However, this is only one approach. We'll go through the fundamental distinctions between fixed deposits and recurring deposits in this post. To accomplish so, however, we must first comprehend the differences between a fixed and recurring deposit.


Fixed deposit vs. Recurring deposit


Fixed deposits, often known as term deposits, are bank-provided financial products that allow you to deposit money for a certain period of time and earn monthly, quarterly, half-yearly, annual, or cumulative interest at the end of the term. A fixed deposit (FD) may only be withdrawn at the end of the period, as the name implies. If you opt to 'break' your FD early, you will have to pay the bank a penalty. A recurring deposit, on the other hand, is a method of depositing a certain amount of money into an account on a regular basis. To receive the same interest rate as FDs, one must first create a specific recurring deposit account. RDs are a fantastic method to save money every month until you have accumulated a larger sum of money, which can then be deposited into an FD.


Key distinctions between FDs and RDs


The aim of the deposit: Investors may put their idle funds in an FD and earn a fixed rate of interest, which is higher than the rate of interest earned while the money sits idly in a savings account. RDs, on the other hand, let you to develop a disciplined practise of saving a set amount of money each month.


The term of the deposit: A fixed deposit can be opened for as little as seven days and as long as ten years. The RD, on the other generally has a six-month minimum deposit period and a ten-year maximum deposit period.


Renewals and withdrawals: With fixed deposits, you can roll them over for a new period, which may or may not be the same as the initial term. If you do not remove an FD, the bank may automatically renew it, however the interest rate may be lower, higher, or the same, depending on the bank's current rate of interest. If you opt to remove your money before it matures, you will be charged a penalty. When it comes to RD renewals and withdrawals, it is possible to close an RD before the end of the term and reinvest it in a term deposit. In addition, partial RD withdrawals are not feasible. If you need money right now, you can take out a loan against your RD rather than breaking it.

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