Term Deposits are an excellent choice for those seeking a stable and secure investment return. With Term Deposits, your money is invested for a fixed period, and you cannot withdraw it until maturity. That is why they are called Term Deposits, as the funds are locked in for a specific term. Here’s what you should know about Term Deposits. There are two types of Term Deposits: Recurring and Fixed Deposits.
In a Recurring Deposit, a fixed sum of money is invested at a fixed interval. In most cases, this interval is once a month. The investments earn interest on them till the maturity period. Simply put, a Recurring Deposit is like opening several Fixed Deposits, each with the same maturity period.
Once the sum of money and the tenure of the Recurring Deposit is fixed, it cannot be changed. Premature withdrawal is possible, but there will be a penalty in the rate of interest that the bank gives.
The minimum Recurring Deposit amount is ₹1,000 and can be increased in multiples of ₹100. The minimum investment period for a Recurring Deposit is 6 months, and the maximum is 10 years. The interest rate on Recurring Deposits ranges between 7% to 9%.
Some banks allow converting a Recurring Deposit to a Fixed Deposit on maturity.
Fixed Deposits are deposits where a particular sum of money is invested for a fixed duration. The duration of Fixed Deposits is flexible. It can range from 7 days to 10 years. The interest rate for the Fixed Deposit depends on the period for which the funds are locked in.
Like a Recurring Deposit, you cannot withdraw a Fixed Deposit amount until maturity. Premature withdrawal is allowed after the bank charges a penalty in the interest rate. The minimum amount of investment for a Fixed Deposit is ₹5,000. The interest rate on the Fixed Deposit ranges from 4% to 7.5%. You can also calculate your rate of interest using the FD calculator.
Some banks provide the option of a sweep-out facility where the amount above a particular balance in a Savings Account is automatically converted to a Fixed Deposit. This helps the Savings Account earn more interest.
A Fixed Deposit is kept for a longer period and hence earns a higher interest rate. A Recurring Deposit takes a defined sum and invests it every defined period. That means each instalment earns interest less than the previous instalment. The interest on a Fixed Deposit for the same maturity is more than that on a Recurring Deposit.
However, a Recurring Deposit is a convenient investment method for people with a fixed monthly investment amount. As such, the investment type depends on the goals and funds available.
A bank’s primary operations are lending and borrowing. A bank needs funds to lend money to people through loans such as Personal Loans, Home Loans, Car Loans, etc. It gathers these funds through Term Deposits, Savings Accounts and Current Accounts. It pays an interest on the borrowings i.e., on Term Deposits or Savings Deposits and charges interest on loans.
As such, a bank always needs funds from depositors, especially as locked-in capital such as a Term Deposit.
Click here to learn more about Recurring Deposits and Fixed Deposits!
You can create your Fixed or Recurring Deposit Asset through an HDFC Bank Savings Account. New customers create an FD/RD by opening a new Savings Account; existing HDFC Bank can create their Fixed Deposit / Recurring Deposit by clicking here.
Looking to open a Term Deposit? Click here to get your Fixed Deposit asset today.
*Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.