Cash certificates and recurring deposits are similar types of banking investments. The terms are used most often in relation to the services that Indian banks provide their customers. These deposits are not directly related to stock market or bond speculation, but instead give investors a way to earn interest on money in a safer setting.
Cash certificates are a type of deposit that is purchased for a certain amount. The account holder purchases the cash certificate for a certain amount, but needs to make payments toward this amount only as long as the term of the certificate lasts. Typically, the account holder builds up to the full amount of the certificate, earning interest as the money is transferred to the account, like a reverse loan. Account holders make payments once every quarter. Cash certificates can last years, and holders can even borrow money against them if necessary.
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Recurring deposits are a type of banking investment very similar to cash certificates. One of the main differences is the deposit terms, which tend to be monthly instead of quarterly. A recurring deposit account may not be as flexible as a cash certificate deposit in terms of lending against the money.
Time periods are very important for investment accounts like cash certificates and recurring deposits. These accounts can be set up to last years, as long as investors are willing to make continual payments. The longer the account lasts, the more favorable interest rate the bank is likely to give. Some accounts last for only a year or two and have lower interest rates than those that last for five years or more.
These bank accounts offer investors an easy way to make a fixed deposit without actually having the entire sum of money present at one time. They can deposit a future lump sum and make payments to complete it, allowing people to invest larger sums of money than they currently have. Banks benefit from continual payments that they can use for investment.
Cash certificates and recurring deposits are most effective if investors actually have enough money to invest. If they find that their income does not allow them to continue making deposits, then they will have to forfeit the deposit and cancel the account, which means money lost.