Fixed deposits and recurring deposits are among the most sought-after investment methods by average investors as they are risk-free.
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The two saving methods are offered by banks or financial institutions. The practice of both remains largely the same as banks offer fixed interest rates on the investment amount over the allotted period of time.
But there's still a slight difference in terms of the value they provide to investors. Lets take a look:
Fixed deposit
For fixed deposits, the individuals can choose a tenure usually in the range of 7 days to 10 years after depositing the entire amount at once. The interest on the amount will be credited to their account on a monthly or a quarterly basis, depending on the norms of the lender. Most of the times, individuals invest a lump sum amount at one go for earning a good amount of income.
Recurring deposit
For recurring deposits, the individuals can choose a tenure usually in the range from a year to 10 years. The investors deposit a fixed amount every month and the interest is earned on a monthly basis. The interest is paid along with the amount invested. However, the total amount will be given back to the investor at maturity.
Difference between fixed and recurring deposits
The major difference between the two is the interval. For fixed deposits, an individual deposits a certain amount of money once while for recurring deposits, the individual has the leverage of depositing a certain amount of money at regular intervals. For example, under the recurring deposit scheme, one can deposit Rs 5,000 every month for two years. The tenure can vary as per how the investor wants it and what the lender offers.
Both the methods have a fixed interest rate even though in recurring the investor deposits a certain amount every month.
In recurring deposits, the individual has to, without fail, deposit the amount agreed in the time frame. If not followed, there are chances that the lender charges a penalty fee to the investor for disrupting the investment cycle.
In fixed deposits, the individual is charged with a penalty fee or cut in the interest rate earnings if the investor plans to break the deposit. The investor is also required to furnish the reason and the details for breaking the deposit.
Which one should you invest in?
According to paisabazaar, more income is earned via the fixed deposit method as compared to the recurring. Even Jitendra PS Solanki, an investment adviser at JS financial advisors, in a Moneycontrol column, shared a similar view.
The experts reason that even though the total amount may be the same for the same time frame, it is because that the compound interest rate is followed that fixed deposits will fetch the individual with more income.
However, if the Individual does not have a large sum of money to invest in a fixed deposit but can afford a small portion of their savings for recurring, then the individual can opt for the recurring deposit instead.
(Disclosure: The CNBCTV18.com editorial team does not engage in speculative or active trading in stock markets and follows its Code of Conduct on securities trading and investment. Any investor/ viewer is advised to carry out necessary diligence on their own or through a certified registered financial advisor for investment decisions.)
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First Published: Nov 27, 2018 1:08 PM IST
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