Fixed Deposits or Recurring Deposits: Which One is Better for You?


What’s a Fixed Deposit?

A fixed deposit is one of the most popular term deposits that banks offer. Having a fixed deposit entails depositing some amount of money, in a lump sum, for a relatively long period of time than other deposits. The rate of interest offered depends on the tenure of the fixed deposit. 

Fixed term, also known as FDs, are an investment vehicle that banks and non-bank financial companies (NBFCs) offer their customers to save money. FD accounts allow you to invest large sums of money at a set interest rate for a certain period of time. At the end of the term, you will receive a flat rate plus interest, which is a good plan to save money. PNB Housing offers best fixed deposit interest rates for FD accounts.

You can choose a time deposit of a minimum of 7-14 days to a maximum of 10 years. For this reason, FDs are sometimes referred to as time deposits. If you open a time deposit account with a certain interest rate, it is guaranteed because the interest rate remains the same regardless of changes due to market fluctuations.

The interest you earn is paid either on maturity or periodically, depending on your choice. You are not allowed to withdraw funds before the due date. If you want, you have to pay a fine.

What is a Recurring Deposit?

Recurring deposits, as the name suggests, allow the customer to make deposits spread over the whole tenure of the deposit, unlike a fixed deposit, which demands a lump sum. Recurring deposits are suitable for those who have low savings and need and are looking for a safe and secure option for investment.

Recurring deposits, known as RDs, are unique time deposits offered by Indian banks. It is an investment vehicle that allows people to make regular deposits and earn decent returns. Due to the regular payment factor and interest component, it often offers the consumer/private individual consumer flexibility and simple investment options.

It is important to note, however, that RD is different from Fixed Income/FD. RD is flexible in many aspects. RD account holders can invest a fixed amount each month and receive reasonable interest on the amount at the same time. RD is the ideal tool for saving and investing.

Most major banks in India offer recurring deposit accounts with maturities that often vary between 6 months and 10 years, while also giving people the option to choose the term based on their needs. Once the interest rate is set, it does not change over the period of time; and when it matures, the person is paid a lump sum which includes the regular investment and interest earned.

Main Areas of Difference:

  1. Amount of Investment: Fixed deposits require a lump sum investment whereas recurring deposits allow the customer to make small deposits over a longer period of time. 
  2. Interest Pay-out: Fixed deposits accrue interest monthly or quarterly. On recurring deposits, the customer receives the whole amount, principal plus interest, after maturity. 
  3. Tenure: The tenure of a fixed deposit ranges from anywhere between 8 days to 10 years, whereas that for recurring deposits ranges from 6 months to 10 years. 
  4. Default Clause: Fixed deposits do not entail a default clause since a lump sum payment is made at the opening of the account. Recurring deposits, however, do hold a default clause under which generally banks have the right to close recurring deposits on which a customer has failed to deposit in over 6 months. 


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