Which is better? Term deposit, Special Term deposit or Recurring deposit?

If you happen to save funds for the future, you are going to choose out of these three schemes, that is, Term deposit, Special Term deposit and Recurring deposits. Which one would you choose?

Let me break it down for you, if you do not know yet. These are all-time deposits available at the bank. Unlike a savings bank account, a time deposit is a deposit account where you need to keep it in the bank for a period of time. Normally, it’s between 7 days to 10 years. You can choose as per your need. Either it may be just for 7 days or for 5 years.

There are some variations in these schemes which we are going to discuss here.

So, what is Term Deposit?

It’s a type of fixed deposit account that you open in the bank for a period of 7 days to 10 years. You can choose the tenor as per your requirement. Here the interest rate is higher than the saving account. The rate of interest is different for each bank. Presently it’s between 5 to 7 per annum.

The add-on feature in a term deposit is that you can withdraw the interest earned on a monthly, quarterly or annual basis.

At the end of the tenor, you will get back your principal invested fund.

What about Special Term Deposit? 

Basically, it’s just like a term deposit, but the difference is you can open STDR for a period between 6 months to 10 years. There will be no option for interest payout. The rate of interest is just the same as a term deposit but it may vary from bank to bank.

The maturity value will be paid to you by the end of the tenor. This maturity value includes invested principal plus interest earned minus TDS (Tax deducted at source).

Recurring Deposit (RD)

A recurring deposit is quite different from a term deposit and a special term deposit. Here the investment does take place in a monthly recurring period of time. 

You can choose the period of investment from 1 year to 10 years, although the rate of interest will be the same as the other fixed deposit, it may vary from bank to bank.

Also, read about Sukanya Samridhi Yojana account

So, it is pretty clear that the bank has given these products as per the need of their customers. You know! customers do have different appetites. If you want to get an interest payout then you choose a term deposit. 

If you invest ₹1 lakh in a term deposit, monthly you will receive around ₹ 584/- presuming the rate of interest is at 7.

If you do not want the interest payout and would like to get all together at the end of the tenor, then you have to go for a special term deposit.

Last but not the least, recurring deposit is devised by the bank to inculcate the habit of savings. As low as ₹ 100/- can be saved through RD. There is no maximum limit, if you have the capacity of saving ₹1 lack per month, you can go for it.

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