Investments do not have to get risky to reap higher benefits. Banks understand this and provide simple investing tools like Fixed and Recurring Deposit Accounts. These are risk-free instruments that offer assured returns. The Account opening procedure for the same is straightforward. You only need to complete the standard KYC requirement and upload the required documents.
Both are lucrative investment opportunities. However, people get confused with how they work. This makes them lose out on the benefits they offer. If you want to utilise the FD and RD to earn higher returns optimally, you should learn about them. Understand how they differ to make wise investment decisions. Learning about the differences becomes easy:
Investment method
The biggest difference between the Deposit Accounts is the investing mechanism. It is good to stack them away to multiply when you have surplus funds. This is where the Term Deposits are helpful. But as most people do not have saved up capital, banks offer RD Account as a great alternative. It allows you to invest from your monthly income regularly. This way, you get to grow your capital without accumulating the funds first.
Tenure
Although not drastically different, the Bank Deposits have varied duration. They offer similar flexibility to plan your investments based on your financial goals. For instance, Fixed investments come with a period ranging between seven days to ten years. In the case of Recurring Accounts, the investment term ranges between six months to ten years. This lets you fulfil your short and long-term goals.
Interest pay-out
Contrary to lumpsum deposits, the Fixed Deposit interest rates get paid regularly. This depends on your selection between monthly, quarterly, or yearly pay-outs. You get to track the same through banking apps for easy management. It is a great option to get regular income from your surplus capital. However, Recurring Accounts release the investment amount with returns only upon maturity.
Opening eligibility
Anyone can open a Fixed Deposit Account with the bank. There are no specific eligibility criteria except for sufficient funds. It is most suitable when you have surplus capital to invest. However, Recurring Accounts require you to invest every month. Hence, you must have a monthly income to keep the investment afloat. Defaulting results in a penalty. Therefore, the basic eligibility has a regular income source.
Deposit amount
It is convenient to start a Deposit Account as the initial deposit requirement is minimal. Even if the Term Deposit Account asks for lump sum investment, it comes with a minimum deposit amount of Rs. 5000 or Rs. 10,000. This is a manageable amount if you have surplus funds. The exact figure depends on the bank. As for RD schemes, you start with as low as Rs. 500.
