What is Recurring Deposit? Advantages-Disadvantages

What is Recurring Deposit? Advantages-Disadvantages

Recurring Deposits are like SIP investments. Customers can invest money regularly with their choice every month and save money easily. 

Hence, the maturity value of a Recurring Deposit depends on the duration of its tenure range from 6 months to 10 years, and individuals can even choose a term with their own choices too. The amount is paid to the depositor after maturity with interest.

The RD Calculator will calculate the maturity amount based on the monthly deposits you make in the RD account with the interest. Generally, the interest in RD is available Quarterly.

An RD (Recurring Deposit) account holder can invest a fixed amount of money each month and can earn decent interest on that amount. The best Recurring Deposit is which offers a higher rate of interest and the interest rate is dependent on banks.

Recurring Deposit Formula– A = P(1+r/n) ^ nt, where ‘A’ represents final amount procured, ‘P’ represents principal, ‘r’ represents annual interest rate, ‘n’ represents the number of times that interest has been compounded, ‘t’ represents the tenure.

Features Of Recurring Deposit

  • RD saving schemes aim at increasing saving habits in people.
  • However, the minimum amount that you can deposit in a recurring deposit depends from bank to bank. The minimum amount you can deposit is Rs 10.
  • Flexibility to invest monthly.
  • The tenure of RD starts from 6 months and has a maximum of 10 years.
  • The interest rate in RD is equal to that offered for a fixed deposit.
  • Mid-term or Premature withdrawals of Recurring Deposits are not allowed depending on the bank but they may allow you to close the account before the maturity period only on certain conditions.
  • The Recurring Deposit can be funded periodically through Standing Instructions which are the instructions given by the customer to the bank to credit the Recurring Deposit account every month from his/her Savings or Current account.

Advantages And Disadvantages Of Recurring Deposit Account

 Advantages of Recurring Deposit

  • Useful for investing short-term goals and enjoying risk-free high return in your investment.
  • Help to meet our short-term financial needs like- Schools fees, Higher education fees, Owning a house, etc.
  • Online facility of RD account which involves opening an account, investing, updating information, creating a new account, closing the RD account, etc. Now you can do anything related to your RD account by just sitting at your home with your mobile phones.
  • Therefore, the RD interest rate depends on the tenure and deposit amount depending on the bank.
  • In RD accounts banks offer an even higher return rate for senior citizens.
  • You can use the RD calculator to calculate the interest.
  • Flexible Recurring Deposit facility, some banks may offer flexible recurring deposit account in which the investor shouldn’t be penalized if he/she didn’t deposit the particular amount during the month.
  • In a flexible RD account, you can even withdraw the amount at any time.
  • A very good saving scheme for women and children.

  Disadvantages of Recurring Deposit

  • Once you have deposited the amount you can’t withdraw any part of that particular amount until the deposit term is over.
  • Because you do investments in a small amount the return rate you get is quite lesser than fixed deposits.
  • In the RD account, you can’t change your investment amount regardless of your financial condition at that movement.
  • Usually, customers who invest in RD have RD in mind and reach to break it even on small needs.

Also, read | How to Save Tax for Government Employee 

What Is Post Office Recurring Deposit?

Indian post offices do various activities along with delivering mail and the most popular service is the post office recurring deposit scheme. 

It allows saving a small amount of money every month to meet our future financial goals and earn fairly higher risk-free returns. It is a government-supported scheme that offers guaranteed returns.

Post Office RD Calculator

Features of Post Office Recurring Deposit Account

  • Post Office Recurring deposit scheme has medium length tenure and people can start investing from Rs 100 also every month for 5 years and the tenure can even extend as well. 
  • You can open a Post Office Recurring Deposit account from both cash or cheque as of your choice.
  • It offers some unique advantages like – Transferring facility where you can switch your post office and transfer your RD account anytime without any problem.
  • Minor people aged 10 and above can even open a Post  Office Recurring Deposit account and can manage-take care of their own.
  • Two adults can open a post office recurring deposit account together and can deposit money in monthly installments.
  • Tex benefits are not available.
  • The amount of deposit made at the time of opening the account cannot be diversified.
  • The maximum default allowed in an account is four after four defaults the accounts are taken discontinued.
  • After 3 years only a person can close the account and interest will be given still the post office RD account will be open during the premature closure.

What Is A Term Deposit?

Term Deposit is a kind of investment option for customers to save money to reach their financial goals in the future.  Term Deposit is also known as Fixed Deposit.

In Term Deposit investors deposit an amount of money for a specific period i.e until the maturity of that amount and can’t withdraw money before the maturity period. 

There are two types of Term Deposit

  • Recurring Deposit
  • Fixed Deposit

What Is A Fixed Deposit Account?

Fixed deposits are a great way to save money. However, You just have to deposit a lump sum of the amount and choose a tenure according to your choice. Fixed Deposits are also known as Term Deposit

Once the tenure will complete you will start receiving a higher rate of interest and the returns you receive will remain the same and will not be affected by the market or economic fluctuations.

Difference Between Fixed Deposit And Recurring Deposit 


                 Fixed Deposit                                                                             Recurring Deposit

  • If a person wants to invest a lump sum amount in a particular time he/she can go for FD.
  • The tenure varies between 7 days to 10 years.
  • The interest rate earned in FD is higher than RD at the end of maturity.
  • A person can get a loan against his Fixed Deposits. The loan amount can differ, and the maximum limit can be 90% of the value of the Fixed Deposit.
  • A person with a surplus amount can invest in a Fixed Deposit plus earn money as interest.
  • A person cannot default in payment because it is done once with a lump sum in the beginning.
  • The main purpose of FD is to save money for a particular period and enjoy higher returns.
  • FD’s are most suitable for pensioners and individuals with good salaries, etc.
  • Monthly or Quarterly interest is available in FD.
  • If a person can only afford a small amount of money to invest every month he/she can go for RD.
  • The tenure varies between 6 months to 10 years.
  • The interest rate earned in RD is lower than FD at the end of maturity.
  • The loan facility is also available for Recurring Deposits. The maximum limit is up to 90% of the deposit amount value.
  • A recurring Deposit enables a person to invest a fixed amount of money at regular intervals. This automatically will instill the habit of savings in a person.
  • If a person fails to make installments for six months, then the bank has the right to close such a Recurring Deposit accounts.
  • The main purpose of RD is to develop the habit of saving regularly.
  • RD’s are good for students, housewives, etc.
  • Monthly and Quarterly interest is not available in RD.


Nikita Dhyani

Nikita Dhyani is a Content Writer at Ionic Digitech. A passionate content writer and has been using her content writing skills to develop various content related to financial and business-related topics. She has done BAJMC (Bachelors in media and mass communication and journalism) from Graphic Era University. Her specialties include - Content creation, Content development, Media managing, Communications skills.

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