What is the difference between Fixed Deposit & Recurring Deposit?

Two investment avenues that are popular in the nation are Fixed Deposit and Recurring Deposit. The primary reason for its popularity is the risk-free nature of the investment. The main advantage of investing in a fixed deposit or recurring deposit scheme is assured returns to the investor. These investments are not linked to the market and hence the market fluctuations do not impact the return on its investment.

Both fixed as well as recurring deposits are offered by leading banks and other financial institutions. Both schemes provide a fixed rate of return on investments. Also, the maturity value shall be predetermined in both cases.

But often the investors face the dilemma to invest in a fixed deposit or recurring deposit. Let us find out to know more which is better for whom-

For starters, let us understand what each investment scheme means.

What is a Fixed Deposit?

Under a fixed deposit scheme, the investment occurs in a lump sum. The tenure for which can range between seven days to a maximum of ten years. The fixed deposit interest rates are offered in the range of 6% to 9% which may fluctuate as per the change in the deposit rates by the central bank of the country (change in interest rate occurs at each renewal and not betwixt). The principal sum is compounded for interest on quarterly or half-yearly or on an annual basis.

What is a Recurring Deposit?

It is a form of investment at fixed monthly periodic intervals. The computation of interest is done either a monthly or quarterly basis. The investor receives such accumulated interest at the maturity date with the principal deposit amounts. The rate of interest remains constant throughout the investment.

Now that we are well versed with both terminologies, let us understand which is better for whom?

Fixed deposit investments are preferred by investors who have a substantial amount at the start of the investment. It enables them to deposit the entire surplus funds right at the beginning. Whereas, under a recurring deposit scheme, the investor deposits periodically. This helps to cultivate the habit of savings. Mostly a recurring deposit is popular among salaried individuals who can apportion a part of their income each month to invest in recurring deposit schemes.

To conclude, investments in a fixed deposit scheme is better as it gives higher returns compared to recurring deposit schemes. Needless to say, it is an excellent example of the compounding effect. But if we consider the flexibility of investment, no doubt that a recurring deposit is preferred over a fixed deposit. On that note, choose the best option for you that aligns with the timelines of your financial goals. Enjoy the Deposit season!