Therefore, while the first installment earns interest over the full tenure of 12 months, the second one earns the same for 11 months and thereon. However, with a recurring deposit, you invest a fixed sum of money every month. Hence, the interest is calculated on a larger sum and owing to the effects of compounding, the maturity proceeds turn out to be on the higher side. This is because with a fixed deposit, you’d have to invest the whole sum (investible surplus) at once. When a comparison (with tenure and rates of interest being the same) is run between a fixed deposit and a recurring deposit, the maturity proceeds of the former are likely to be higher. The point is there are two basic aspects that act as the differentiators. You might then think exactly how a fixed deposit is different from a recurring deposit. The bank deducts a tax at source (TDS) for both, in case the interest amount exceeds Rs. The interest and maturity proceeds are credited in the same manner as that in a fixed deposit.
Recurring deposit, on the other hand, is investing a fixed sum (generally in multiples of 100s) every month, for a fixed period of time at specified rates of interest. The accumulated interest is paid to the investor along with the principal sum of the FD at its maturity i.e. Interest is either accumulated and credited to the amount of the FD or deposited to the investor’s savings account on a monthly, quarterly, half-yearly or annual basis. Once invested, the money cannot be taken out prior to completion of the minimum lock-in period, lest you are ready to bear the penalty imposed by the bank. In fact, many present-day investors also invest regularly in FDs and RDs in order to compensate for risks arising from investments made in more sophisticated, market-linked securities.Īn investor may invest a specific sum of money into a bank FD at a specified rate of interest for a predetermined tenure. They are perhaps the simplest form of investments while being relatively low on risks at the same time. Let’s delve a little deeper into these traditional and most favored investment avenues for the average Indian family.įDs and RDs: Traditional investment avenuesīoth fixed deposits and recurring deposits are traditional investment avenues that have been preferred across generations. This is the reason why most of us would be familiar with the concepts of Bank Fixed Deposits, Recurring Deposits – particularly because of them being some of the more talked about topics in our regular lives. India has traditionally been a nation that believes in saving first and spending later.