Difference between term and time deposit
Understanding how these solutions work will help you see how they can benefit you at various points of your savings journey. Here’s a quick rundown of the key distinctions between term deposits and savings accounts.
Term Deposits are one of the best investment opportunities for those looking for a consistent and secure return on their money. In Term Deposits, the money is kept for a set period of time and the depositor is not able to withdraw it before the maturity period is over. As they are kept for a set period of time, they are referred to as Term Deposits. However, here’s what you need to know about Term Deposits.
There are two types of Term Deposits:
- Recurring Deposits
- Time Deposits
- Recurring Deposit
A recurring deposit invests a set amount of money at a set interval. This occurs once a month in the majority of cases. Until the investments reach maturity, they earn interest. Simply stated, a Recurring Deposit is the same as opening several time Deposits, each with the same maturity period.
The amount of money and the duration of the Recurring Deposit cannot be adjusted once they are set. It is possible to withdraw funds early, but there would be a penalty in the bank’s interest rate. The minimum sum for a Recurring Deposit is Rs. 1,000, and it can be raised in increments of Rs. 100. A Recurring Deposit can be invested for as little as six months and as long as ten years. The interest rate on a recurring deposit is usually between 7% and 9%. On maturity, some banks offer the option of converting a recurring deposit to a time deposit.
Time Deposits are savings accounts in which a certain amount of money is deposited for a certain period of time. Time Deposits come in a variety of lengths. It can last anywhere from seven days to ten years. The interest rate on a Time Deposit is determined by the length of time the funds are locked in.
A Time Deposit sum, like a Recurring Deposit, cannot be withdrawn until the maturity period has passed. A Time Deposit requires a minimum investment of Rs. 5,000. The interest rate on a Time Deposit will range from 4% to 7.5 percent. You may also use the FD calculator to measure your rate of interest. Some banks offer a sweep out option, whereby any amount in a Savings Account that exceeds a certain balance is automatically converted to a time Deposit. This increases the interest earned on the Savings Account.
Term Deposit vs Time Deposit
Since a time Deposit is held for a longer period of time, it pays a higher interest rate. A recurring deposit deposits a set amount for a set period of time. This ensures that each instalment earns attention for a shorter period of time than the one before it. For the same maturity, a time Deposit pays more interest than a Recurring Deposit.
A Recurring Deposit, on the other hand, is a convenient way to invest for people who have a set monthly investment number. As a result, the form of investment is determined by the priorities and funds available.
How do Term Deposits Function?
The primary functions of a bank are lending and investing. A bank requires funds in order to lend money to people in the form of loans such as Personal Loans, Home Loans, Car Loans, and so on. It charges interest on loans and pays interest on borrowings, such as Term Deposits or Savings Deposits.
There isn’t much of a distinction between the two, and as previously said, they can be used interchangeably in India. In India, on the other hand, the term “time deposit” is rarely used. In reality, people are more likely to hear the term fixed deposit. They’re more often referred to as fixed deposits by bankers. To know more, visit Finserv MARKETS.