In banking terminology, the term recurring deposit refers to the periodic placement of a fixed sum of funds with a bank or financial institution into a special term account, with a specified tenure, generally between one and five years. At the end of the tenure, the funds are typically withdrawn by the depositor with accrued interest.
For example, a recurring deposit plan is most commonly used by people with a regular income to set a portion of their income aside each month in order to make a large purchase in the future. When the Recurring Deposit account is opened, the maturity date and monthly installments are agreed upon between the depositor and the financial institution. If any installment is missed or delayed, interest payments towards the account are deducted as a penalty, which is generally specified when the account is opened. The rate of interest on recurring deposit accounts is generally comparable to that of fixed deposit accounts.