What Are The Difference Between Fixed Deposit And Recurring Deposit

By Author: Moneyedge
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When it comes to investing our hard-earned money, there are several options available to us — each with its own advantages and considerations. Two popular investment instruments are fixed deposits (FDs) and recurring deposits (RDs). While both options offer a reliable way to grow wealth, it is essential to understand their differences before making an informed investment decision.

Structure and Financial Commitment

A fixed deposit involves depositing a lump sum amount into an account for a fixed period, which can range from a few months to several years. This one-time investment fosters a disciplined approach and attracts individuals who have a surplus of funds or those seeking to invest a windfall1. On the other hand, a recurring deposit involves regular monthly deposits of a fixed amount over a predetermined tenure, usually ranging from six months to ten years. This systematic approach appeals to investors with lower amounts of disposable income, as it allows them to contribute small amounts regularly2.

Deposit Amount and Accessibility

In fixed deposits, the deposit amount is typically higher ...
... compared to recurring deposits, making it more accessible for those with a significant sum to invest. The minimum deposit amount varies across banks and financial institutions, ensuring flexibility for investments based on individual financial goals and capacity1. Conversely, recurring deposits enable individuals with limited funds to contribute small amounts monthly. This accessibility ensures that individuals of varying income levels can actively participate in wealth creation and harness the power of compounding2.

Interest Calculation and Returns

Fixed deposit interest is calculated on the principal amount invested and remains unchanged for the tenure of the deposit. The rate of interest is determined at the time of deposit, ensuring certainty for investors who prefer stability1. On the contrary, recurring deposits calculate interest on the monthly deposits made throughout the tenure. This compounding interest is typically calculated quarterly, half-yearly, or annually and leads to potentially higher returns over time, especially for longer tenures