If you want to earn risk-free returns on your investment in the UK, then term deposits and recurring deposits are two of the best options. Read this post to understand some of the biggest differences between the two so that you can make the right investment decision.
Not every investor is comfortable with the high level of risk associated with most investment options. Diversification is crucial even for investors who prefer such risky investments. This makes fixed-return investments a vital component of their investment portfolio.
Term deposits and recurring deposits or RDs are two of the most popular fixed return investment options in the UK. Both of them help you generate risk-free returns over a fixed tenure. However, there are some significant differences between the two. Take a look-
1. Investment Method
With a term deposit, you invest a lump sum amount that remains in the deposit account throughout the selected tenure. It is a one-time investment, and you can withdraw it along with the interest income at the end of the tenure. For instance, you can invest GBP 10,000 for 2 years.
With an RD, you select an amount that you’d like to invest regularly over a fixed tenure. You can choose monthly, quarterly, or bi-annual instalments. For instance, you can invest GBP 1,000 every month for a period of 2 years. You can withdraw the total amount invested throughout the tenure and the interest income earned at the end of the tenure.
2. Deposit Tenure
With most banks in the UK, you’re allowed to open a term deposit account for a tenure ranging from 6 months to 5 years. But with RD accounts, the tenure can range from 1 year to up to 10 years. In most cases, RD accounts have a higher tenure option.
But note that the tenure options can vary between banks. Confirm the same with your bank before deciding.
3. Returns from Investment
Another significant difference between term deposits and RDs are the returns they generate. In most cases, it is seen that term deposits offer a slightly higher interest rate as compared to RD accounts.
But like the tenure, the interest rate can also vary between banks. Also, some of the UK banks have different interest rates for the tenure and the currency in which you open your term deposit or RD account. GBP, EUR, and USD are generally the three currencies in which you can open these accounts with most banks.
4. Additional Investment
A few of the UK’s top banks now allow you to invest an additional amount in the Recurring Deposit (RD) account. This amount is above the fixed instalment you’ve selected for the account. If you have some extra savings, then you can deposit the same into the RD account for earning additional income.
This feature is generally not available with term deposits in the UK. The lump-sum amount that you invest initially cannot be increased during the tenure. However, you can open a different term deposit account if you have some extra savings.
Selecting Between Term Deposit and Recurring Deposit in the UK
If you’re finding it difficult to choose between RD and term deposit, then the differences listed above can help make the selection easier.
You can always consult a top bank in the UK to know more about the differences and make the right investment decision.