Category: Banking

Before getting started to the difference between fixed deposit and recurring deposit, it is wise to understand the meaning of both the terms.

Fixed Deposit

Fixed deposits (FD) are deposits with banks or some other financial institution for a predefined time period. An investor has to deposit a fixed amount of money (ranging from thousands to lakhs) at the time of creating FD. Also fixed deposit provides an investor the option to choose the tenure ranging from 7 days to 10 years.

Recurring Deposit

Recurring deposit is another banking instrument used for saving purpose. It provides an investor the flexibility to save a specific amount of money every month in RD account. The amount may vary from a thousand to lakh per month. This amount has to be deposited with a financial institution for a predetermined time period (Tenure).

Difference between Fixed deposit and Recurring Deposit:

Fixed deposit and recurring deposit can differentiate on the basis of below mentioned points:

Amount of Money:

Recurring Deposit can be start with a small amount of money. In comparison to recurring deposit fixed deposit is started with larger amount of month.

If one has lump sum of money than fixed deposit is better option than recurring deposit.

Objective:

The primary objective to start a recurring deposit account is to save money. As RD can be start with minimal amount of money, this instrument is used to save a small amount of money every month.

The sole objective behind opening a fixed deposit account is to use the money as an investment option.

Interest Rate:

Although both fixed deposit and recurring deposit attract same interest rates but return from both these instruments are different. It is because fixed deposit is started with a lump sum amount and it fetches interest for the whole period on that amount.

On the other hand recurring deposit is used to deposit small amount of money every month so the interest is paid accordingly.

For example a recurring deposit which is started with INR 1000 fetches interest on 1000 for the whole year, 2000 for 11 months, 3000 for 10 months and so on.

Taxability:

TDS is deducted on fixed deposit if interest amount exceeds INR 10000 but in case of recurring deposit this rule is not applicable.

What is CIBIL?

Credit Information Bureau (India) Ltd or CIBIL is a credit information company which collects and maintains individual’s payments of loans and credit cards.

 

What is CIBIL Score?

CIBIL TransUnion Score is a 3 digit number ranging from 300 to 900 points.

What is Credit Information Report (CIR)?

Credit Information Report (CIR) is the history of one’s credit payment with banks or financial institutions.

Why CIBIL score is important?

Every time an individual applies for a loan from any bank or other financial institutions, CIBIL Score is checked.

What is a good CIBIL Score?

A CIBIL TransUnion Score of more than 700 points is considered as good.

When does CIBIL start recording transactions?

The time when an individual applies for a loan or credit card, his/ her transactions get started to record.

What does CIBIL consider while assigning an individual a CIBIL Score?

Individual’s payment history of loans is considered.

Do normal transactions in individual’s account affect CIBIL Score?

NO, Credit Information Report does not affected by saving, investment or deposit history.

How can an individual get to know his/ her CIBIL Score?

An individual can purchase his/ her CIR from the official website of CIBIL.

Meaning of fixed deposit:

A fixed deposit (FD) is deposit with banks or some other financial institution for a predefined time period. An investor has to deposit such a fixed amount of money (ranging from thousands to lakhs) at the time of creating FD. The interest rate levied upon fixed deposits is higher than interest on saving accounts. An investor has the option to choose the tenure of FD ranging from 7 days to 10 years. The longer tenure of FD attracts a higher rate of interest than a shorter one.

Fixed deposit is also known as term deposit in countries like Australia, time deposit in countries like United States and bond in countries like United Kingdom.

Features of fixed deposit:

1) FD is safer investment option in terms of market risk.

2) Return on FD is predefined irrespective of market fluctuations.

3) Fixed deposits provide higher rate of interest than a normal saving account.

4) FD provides an investor the flexibility to break it prematurely (Subject to some penalties).

5) The interest levied on FD is tax free up to a limit.

6) In India, most of the banks provide a credit card or loan against FD.

Meaning of Recurring deposit:

Recurring deposit is a type of term deposit made for saving purpose. It provides an investor the flexibility to save a specific amount of money every month in RD account. The amount may vary from a thousand to lakh per month. This amount has to be deposited with a financial institution for a predetermined time period (Usually called Tenure). In India most of the banks provide such kind of deposit schemes to retain their customer’s money with them.

Fixed rate of interest is paid on recurring deposits. A longer tenure fetches higher interest rate than the shorter one.

Features of Recurring deposit:

1) RD can be opened with small amount of money. This way it does not hurt the pocket of an investor.

2) RD schemes provide a stable investment option irrespective of market fluctuations.

3) It provides the flexibility to direct debit the amount from investor’s account. So investors do no have to visit their bank every month for payment.

4) An investor can break RD at any point of time.

5) At maturity, it provides the facility of direct credit the amount of principal as well as interest in customer’s account.

Term deposit is type of investment option in which an investor deposits a fixed amount for a predefined period. In India these types of deposit are offered mainly by banks to their existing customers. In a term deposit an investor has the flexibility to choose a time period (maturity period).

These deposits attract a fixed rate of interest on it. That’s why many investors prefer these deposits rather than investing in fluctuating markets like share market. It also provides the flexibility to withdraw the money before its maturity, subject to penalties over it.

Term deposit is also known as time deposit.

Why term deposit?

These are the traditional way of investment, which is cosidered less risky as compared to other investment options. This option is mainly prefered by people above the age of 40.

Main feautres of term deposits are:

Term deposits are subject to higher interest rate as compared to demand deposits. Demand deposits include saving account, current account etc.

Term deposits are subject to a fixed interest rate.

They provide an edge against market fluctuations.

They also provide the flxibility to choose a time for investment.