Top 5 Differences Between Fixed Deposits and Recurring Deposits

Recurring Deposit vs Fixed Deposit

Banks provide recurring deposits and fixed deposits as ways to encourage individuals to save. The amount on fixed deposits is locked in for a set period of time, whereas the amount on recurring deposits must be deposited every month for a set period of time. Both RDs and FDs can be opened online using mobile banking apps or net banking.

Table of Content-
  • A comparative difference between fixed deposit and recurring deposit
  • What is a recurring deposit account?
  • Features of a recurring deposit account
  • Types of recurring deposit account
  • How to open a recurring deposit account online
  • How to open recurring deposit account offline
  • What is a fixed deposit account?
  • Features of a fixed deposit account
  • Types of fixed deposit account
  • How to open a fixed deposit account online
  • How to open a fixed deposit account offline
  • 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.

    A Comparative Difference Between Recurring Deposit and Fixed Deposit

    The difference between fixed deposit and recurring deposit is given below-

    ParametersFixed DepositRecurring Deposit
    When to deposit amountLump sum in one goEvery month
    Who can openAnyone with an active bank accountPerson with a regular source of income
    Amount to be depositedVaries from one bank to anotherParticularly Rs 500
    Tenure7 days to 10 years6 months to 1o years and beyond
    TypesCumulative Fixed Deposit
    Non Cumulative Fixed Deposit
    Bank deposits
    Company deposits
    Senior citizen FD
    NRIs FDs
    Regular FDs
    Standard FDs
    Tax saving FDs
    Regular recurring deposit account
    Recurring deposit account for NRI
    Recurring deposit account for minors
    Recurring deposit accounts for senior citizens

    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 are the Types of Recurring Deposit Accounts?

    The following are the various types of recurring deposit accounts in which a user can invest:

    Types of Recurring Deposit AccountMeaning
    Regular recurring deposit accountUsers over the age of 18 who have a regular source of income
    Users can earn competitive interest on the deposited amount
    Interest rates are determined by the tenure selected and the amount deposited
    Recurring deposit account for minorsFor minors under the age of 18 years
    The account can be opened by the minor’s guardian/parents
    Recurring deposit account for NRIFor NRIs
    Banks offer a good interest rate on such types of RDs
    Recurring deposit accounts for senior citizensFor senior citizens
    Banks offer higher interest rates

    How to Open a Recurring Deposit Account Online?

    The following are the steps that must be taken by the user in order to open a recurring deposit account online:

    • Log in to the banking mobile application
    • Navigate to the ‘Open recurring deposit account option,’ ‘investment option,’ or any other option related to the opening of a recurring deposit account
    • Enter the deposit amount, then choose the tenure and type of recurring deposit account
    • Enter the date on which the amount will be deducted each month
    • Click the ‘proceed’ or submit button

    How to Open a Recurring Deposit Account Offline?

    The options for opening an offline recurring deposit are as follows:

    • Pay a visit to your local bank
    • Connect with a banking official and fill out the recurring deposit account form, including all of the details such as the amount to be deposited every month, the type of recurring deposit account to invest in, tenure, nominee, and so on
    • Submit the application form for a recurring deposit account as well as the deposit amount
    • Your application for a recurring deposit account will be processed by a banking official

    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

    What are the Types of Fixed Deposits

    The types of fixed deposits are-

    Type of fixed depositsExplanation
    Cumulative Fixed DepositInterest is only available at the time of maturity
    Users are not eligible for interval-based interest
    Higher interest rate
    Suitable for people who are not looking for regular interest payment
    FD tenure ranges from 1 year to 5 year
    Non-Cumulative Fixed DepositInterest provided at regular intervals
    FD tenure ranges from 1 to 5 years
    In case of regular interest payout, one will be eligible for a decreased amount at the time of maturity
    Suitable for people who need regular income in the form of interest
    Bank depositsOffered by banks to customers with saving accounts
    The rate of interest is lower than the rates offered by non-banking financial companies
    Company depositsOffered by NBFCs with a higher rate of interest
    For companies with good creditworthiness
    Senior citizen FDFor people above 60 years of age
    Offers higher rate of interest as compared to other FDs
    Flexible tenure
    NRIs FDsApplicable for NRIs, OCI, PIO with NRO accounts
    Higher rate of interest as compared to traditional saving accounts
    Fixed tenure
    Payment mode- NEFT/RTGS from NRO bank account
    Regular FDsRegular form of investment
    User can invest the amount for a particular time period
    A predetermined rate of interest is offered
    High interest rate
    Tax saving FDsOffered by a major number of banks
    Tax exemption up to Rs. 1.5 lakh annually
    Lock in period of 5 years, before that, the amount cannot be withdrawn
    One time lump sum amount deposit
    Standard FDsFixed tenure
    Predetermined rate of interest
    Tenure starts from 7 days to 10 years
    Higher interest rates as compared to saving account

    How to Open an FD Account Online?

    Following are the steps to open an FD online-

    • Log in to your bank’s online banking platform
    • Visit the fixed deposit section on the portal
    • Fill in all of the required information and press the ‘Submit’ button
    • If you open an FD account with an existing bank, you will not be asked to complete the KYC process again because the bank already has your information
    • Alternatively, if you are opening a new FD with a new bank, make sure you have all of the necessary KYC documents and a passport-sized photograph ready

    How to Open an FD Account Offline?

    To open an FD account offline-

    • Visit the bank’s branch and fill out the application form with all of the necessary information
    • Once completed, submit the form to the concerned official
    • Deposit the required amount and collect the deposit receipt
    • To open an FD account with a new bank, it is best to contact an official who can walk you through the entire FD creation process. Apart from that, bring all of the KYC documents and a passport-sized photograph to complete the FD account process

    Conclusion

    The above-mentioned differences, 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.

    FAQs
    What is the tenure for a fixed deposit account?
    The tenure for a fixed deposit starts from 7 days to 10 years. However, the duration may differ from one bank to another.
    What are the types of fixed deposit accounts?
    The types of fixed deposit accounts are Cumulative fixed deposit, non-cumulative fixed deposit, bank deposits, company deposits, senior citizen FD, NRIs FDs, regular FDs, standard FDs, tax-saving FDs.
    Is it possible to open an RD online?
    Yes, most banks allow you to open an RD online via their mobile banking app or net banking service.
    Who is eligible to open a fixed deposit account?
    Anyone with an active bank account can open an FD online or in person.
    Can I open RD?
    A person with a regular source of income (as the amount must be deposited monthly) can open an RD with the bank.
    How much interest will I get on an FD?
    The interest rate offered by banks varies, hence, it is advised to compare the interest rate offered by different banks.
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