What is a Recurring Deposit Account?
Individuals with a regular income can use a Recurring Deposit (RD) to contribute a fixed amount to their RD account every month. They can earn interest on their funds by doing this. RDs are a particular kind of term deposit that banks offer. The following are the key features and benefits of RD:
- In a recurring deposit account, customers deposit a set amount of funds each month for a predetermined period.
- These accounts encourage and facilitate careful financial practices.
- The duration of recurring deposit accounts can be short, medium, or long, and the bank's interest rate may change depending on the duration selected.
- Each type of recurring deposit offered by banks has a different interest rate and is intended for people, children, older persons, and non-resident Indians (NRIs).
- Each bank may have a different procedure for opening a recurring deposit account.
- Closing an account with recurring deposits is possible, although there can be a penalty.
What is a Fixed Deposit Account?
A secure method of saving for the future is through fixed deposits, sometimes referred to as term deposits or time deposits. Here are a few key aspects and advantages of FD:
- Receive interest on your deposit for a predetermined amount of time.
- The interest rate doesn't change for the deposit.
- Flexibility to select whether to receive interest payments regularly or when the loan matures.
- Funds cannot be taken out before maturity, and there is a penalty for early withdrawal.
Difference Between Recurring Deposit and Fixed Deposit
The difference between fixed deposit and recurring deposit is given below:
| Parameters | Fixed Deposits | Recurring Deposits |
| Purpose of Deposit | One way to invest funds is through a fixed deposit plan, which offers interest at a higher rate than a savings bank account. | RDs are a financial tool promoting the habit of setting aside a certain amount of funds monthly. |
| Duration of Deposit | The FD has a minimum period of seven days and a maximum duration of ten years. | RDs have a minimum tenure of six months and a maximum duration of ten years. |
| Renewals | FDs are auto-renewable. | Auto-renewal is not an option available to RDs. |
| Premature Withdrawals | When it comes to FDs, early withdrawal carries penalties. | Premature withdrawals are allowed but may result in a lower interest rate or penalty charges, depending on the financial institution's policy. |
Conclusion
The most suitable choice for someone with a significant amount of funds who wants to invest it all at once is FDs. FDs are one of the choices to increase your income over time. However, investing in an RD would be beneficial if one does not have a substantial quantity to invest in one go. One can deposit modest but equal sums of money each month in the case of an RD. Platforms like PowerUp Money offer various ways to manage wealth. You can use platforms like these to manage funds better.