What is a Recurring Deposit?

A recurring deposit is a type of account in which an investor agrees to deposit a fixed amount of income into the account on a monthly basis for a specified period of time. Typically, these types of deposits continue for a period of no less than one and no more than five years. In some nations, the interest rates applied to a recurring deposit account are somewhat more attractive than the rates offered for standard savings accounts that do not have some sort of monthly deposit commitment.

While not offered in all countries, the concept of the recurring deposit is found in a number of nations around the world, including the United Kingdom, Canada, and Australia. Accounts of this type may be established at most banks in those nations. In some areas of the world, it is also possible to set up what is known as a recurring post office deposit when the post office system within a given nation also offers various types of financial services. In either case, the establishment and maintenance of the account according to the terms and conditions found in the deposit agreement is important if the depositor wishes to receive the greatest degree of benefit from this type of financial arrangement.

One of the main benefits of a recurring deposit is the ability to receive a lump sum disbursement once the account reaches its maturity date. This makes the account an excellent option for setting money aside for a specific reason. For example, if an individual has determined to buy a home at the end of the next five years, he or she could make monthly contributions to a recurring deposit account as a means of incrementally saving a specific amount for the down payment. Determining the amount of the monthly deposit could be achieved using a recurring deposit calculator, ensuring that once the maturity date is reached, the anticipated funds are accumulated and ready for use.

Another benefit is the amount of interest that is earned during the life of a recurring deposit. In many nations, the rate of interest offered on these accounts is higher than with standard savings accounts and similar investment options. Accounts of this type may be structured with a variable or floating rate of interest that is based on the current interest rate offered on new accounts, or carry a rate that is fixed and does not change for the life of the account. If the investor does not believe that interest rates are likely to increase for the duration of the recurring deposit account, a fixed rate that protects from possible decreases in the interest rate applied to the balance may be the most prudent course of action.