Freshers who wish to pursue career in Banking Sector are assumed to have basic working knowledge of the working of a Bank. Candidate should know the Basic Banking Terminologies like CRR, SLR, FD, RD, CASA etc. Banks have mainly 4 types of Deposit Accounts, namely Current Accounts, Saving Banking Accounts, Recurring Deposits and Fixed Deposits. One of the common bank interview question asked by Managers to Freshers with very basic knowledge about Banking is “What is the difference between Fixed Deposit and Recurring Deposit”.
Here we will briefly describe Fixed Deposit and Recurring Deposit schemes and the basic differences between the two.
Fixed Deposit:
• Fixed deposit schemes have a wide range of tenures for periods from 7 days to 10 years. These are also popularly known as FD accounts. However, in some other countries these are known as “Term Deposits” or even called “Bond”.
• The term “fixed” in Fixed Deposits (FD) denotes the period of maturity or tenor. Therefore, the depositors are supposed to continue such Fixed Deposits for the length of time for which the depositor decides to keep the money with the bank.
• However, in case of need, the depositor can ask for closing the fixed deposit prematurely by paying a penalty.
• The rate of interest for Fixed Deposits differs from bank to bank
Fixed Deposit vs Recurring Deposit
Recurring Deposit:
• Recurring deposits are special kind of Term Deposits and are suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every month.
• Normally, such deposits earn interest on the amount already deposited (through monthly instalments) at the same rates as are applicable for Fixed Deposits / Term Deposits.
• Recurring Deposit accounts are normally allowed for maturities ranging from 6months to 120 months.
• A Pass book is usually issued wherein the person can get the entries for all the deposits made by him / her and the interest earned. Banks also indicate the maturity value of the RD assuming that the monthly instalments will be paid regularly on due dates. In case installment is delayed, the interest payable in the account will be reduced and some nominal penalty charged for default in regular payments
• Premature withdrawal of accumulated amount permitted is usually allowed (however penalty may be imposed for early withdrawals).
(checkout our post on Frequently Asked Questions in a Bank Interview)
Difference Between Fixed Deposit and Recurring Deposit:
• We can thus summarise, Fixed deposit is where you invest your money once for a term (say few months or years).
Recurring deposit is but a scheme where one can save certain amount on regular basis (monthly payment).
• If you have lump sum amount in hand at present then you can go for a fixed deposit scheme that keeps your money safe as well as earns money on it. This amount that you pay will be fixed by you in the beginning for a committed term.
If you cannot afford to deposit a lump sum amount but comfortable to deposit small amount on a regular basis (monthly payment) recurring deposit is the most appropriate . Even smallest commitments in life like purchase of a mobile phone, television can be planned through this scheme because you are allowed to pay small amounts as premiums.
• However if you have a choice to choose between the two i.e. you have lump sum as well as constant monthly income then actually FD earns higher returns on your money than RD.