Recurring Deposit

Among the low-risk investment tools with moderate and assured returns, Recurring Deposit (RD) is a popular investment option in India. It comes with an option of flexibility for customers in the choice of investment amount and tenure accompanied by multiple other benefits.

Available in flexible tenure options ranging from 6 months to 10 years, this investment tool offered by multiple banks and NBFCs helps channelize monthly savings for long or short-term corpus creation. 

Investors can thus choose a minimum amount to be invested every month over the term for assured wealth generation.

If you do not have a lump sum amount to meet short-term goals, depositing a small share of your income to the RD account every month serves the purpose well.

A Brief Overview of Recurring Deposits

You can opt to open your Recurring Deposit account with multiple financial institutions like banks, NBFCs, or even post offices. While the minimum amount of investment may vary from one institution to another, you can usually start with a considerably small amount, say Rs. 500 every month, as per your budget.

What is a Recurring Deposit?

Among the low-risk investment tools with moderate and assured returns, Recurring Deposit (RD) is a popular investment option in India. It comes with an option of flexibility for customers in the choice of investment amount and tenure accompanied by multiple other benefits.

Available in flexible tenure options ranging from 6 months to 10 years, this investment tool offered by multiple banks and NBFCs helps channelize monthly savings for long or short-term corpus creation.

Investors can thus choose a minimum amount to be invested every month over the term for assured wealth generation. If you do not have a lump sum amount to meet short-term goals, depositing a small share of your income to the RD account every month serves the purpose well.

Features of Recurring Deposit

RD allows you to earn fixed interests on the amount invested at frequent intervals until the investment matures or a predetermined term ends. The total amount (i.e., the capital invested and the interest accumulated) is disbursed to the investor after the maturity period completes.

Here is a table that provides a brief overview of RD features:

RD Features  Applicability
Rate of interest Between 5% to 8% (variable from one bank to another)
Amount of minimum deposit From Rs. 10
Tenure of investment Between 6 months and 10 years
Frequency of interest calculation Usually every quarter
Mid-term or partial withdrawal Not allowed
Premature account closure Allowed with penalty

Now, take a look at the features of RD in detail.

  • Minimum investment

The minimum investment amount varies from one bank to another. You can open this account with an amount as small as Rs. 10.

  • Deposit term

The minimum deposit tenure starts from 6 months. You can choose a suitable period of deposit with a maximum tenure stretching up to 10 years.

  • Interest rate

The interest rate offered on RDs is always higher than the interest earned through a savings account. The interest rates offered on RDs are also similar to what you can earn through FDs.

Returns on RD – Interest Earned

Almost all banks in the country along with several other institutions offer Recurring Deposit investment options. The interest rates are, thus, highly competitive. Depending on the prevalent market trends at the time of account creation, the interest rates may vary anywhere between 5% and 8%. The average interest rates, however, hover around 6% to 7% for most banks.

Interest rates in RD also vary depending on the investor’s age. For instance, senior citizens can enjoy the benefit of higher interest rates as against the existing interest rates for regular RD schemes. Also, you can calculate your rd returns by using RD Calculator.

Eligibility for a Recurring Deposit

  • Anyone can do it.
  • Any minor above the age of ten is entitled to open a recurring deposit account if he or she produces proof of identity.
  • Any minor under the guardianship of a natural or legal guardian who is under the age of ten.
  • Any corporation, firm, sole proprietorship, or commercial enterprise.
  • Any government institution.

Important Factors to Check Before Applying for Recurring Deposit

  • Term Period of the Recurring Deposit Account

There are mainly 3 categories into which the term periods are divided. Short-Term Tenure that lasts from 6 months to a year, Medium-term tenure that lasts from more than a year to 5 years, and Long-term tenure that lasts from more than 5 years to 10 years. You must consider checking the tenure before applying.

  • Interest Rate Offered

Consider reviewing the interest rate offered before you apply for an RD account as different banks offer different interest rates depending on different term periods.

  • Premature Withdraw Conditions

Usually, all banks offer the facility of opening an RD account. They also offer the choice of premature withdrawal of the same. If you decide to withdraw before maturity, the interest payable will be calculated on the basis of the tenure completed. Also, banks will charge a penalty for such withdrawal. Thus, before you invest, choose a bank that offers a high rate of interest and charges a less amount of penalty on premature withdrawal.

Documents Required to Open a Recurring Deposit Account

  • An application form
  • Passport size photograph of the applicant
  • ID and Address proof
  • KYC documents

Opening an RD Account 

A customer can either open an RD online or offline, and they are:

How to Open an RD Account Online

– Log in to your net banking account or application.

– Choose the ‘Open an e-RD account’ option.

– Specify the account number to which the installment should be debited, the amount of the installment, and the duration. Check the applicable interest rate and make a note of the nominee for the account funds.

– After you’ve checked the maturity amount, click the checkbox to confirm that you agree to all of the terms and conditions.

– Send in your application. A confirmation message will be displayed, and an email with the RD receipt will be sent to the registered email address.

– The stated amount will be deducted from the selected amount.

How to Open an RD Account Offline

– Visit the local branch of the bank where you already have a savings account.

– Fill out the RD application form and include information such as the installment amount, mode of payment, deposit tenure, nominee, and other pertinent information.

– Pay the first installment with a check or in cash.

– Your application will be processed within the time frame specified by the bank representative.

Types of Recurring Deposits

Apart from the regular RDs that you can invest in to earn interest income and grow your corpus, RDs are also available in other types, suitable for different investors.

  • RD for Senior Citizens

Carrying the same features as a regular RD, the scheme for senior citizens brings higher interest rates than the regular accounts. The interest is compounded quarterly as per the applicable interest rate, thus helping senior citizens withdraw a higher maturity amount and meet their short-term funding needs efficiently in the absence of a regular income.

Generally, the additional interest rates offered by various banks on the senior citizen RD schemes range between 0.25% and 0.75% above the regular deposit rates.

  • RD for NRI/NRE

RD schemes are one of the best investment options for NRIs (Non-Resident Indians). Substantial returns through investment can be generated with a small recurring investment amount per month. As an NRI, one can invest in RDs either through an NRE or NRO RD account.

  • Minor RD Account

Such accounts will be opened in the names of individuals under the age of 18; however, this is only feasible with the supervision of their parents or guardians. A fixed monthly installment and tenure will be specified at the time the account is opened, just like with normal RD accounts. When compared to normal RD accounts, the returns may be comparable or slightly greater.

RD Renewals and Deposits

Conditions regarding a premature or partial withdrawal of RD are applicable if you initiate withdrawals before the tenure ends.

  • For premature withdrawal
  • If you initiate premature RD closure before the term ends, you will enjoy interest for the deposit period. Also, a premature withdrawal penalty of 1% is levied by the bank.
  • FD schemes come with a lock-in period, the minimum of which is usually three months. If you withdraw before this period, interest earned will be zero, and you will receive only the amount deposited.
  • Premature RD withdrawal also makes you ineligible for any additional incentives applicable otherwise.
  • For partial withdrawal
  • Banks do not allow partial withdrawal of the RD amount.
  • Some banks, however, offer an overdraft or loan against the deposit as collateral. You have to repay this loan in a lump sum.
  • Post office RDs, however, allow partial RD withdrawal if the account is maintained for over a year.
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Benefits of RD Investment

As the return of principal amount investment along with accumulated interest as per the applicable rate is guaranteed, RD becomes a smart, risk-free investment option. Here are some other benefits it brings.

  • Useful in fulfilling financial goals

RD is an entirely risk-free investment whose guaranteed returns make it suitable for fulfilling both short and long-term goals. Hence, RD may be just the right investment option if you require financial assistance to meet the below-mentioned requirements.

  • The cost of higher education for your kids.
  • Expenses on home renovation and furnishing.
  • Vacationing abroad.
  • Expenses incurred on marriages.
  • Inculcates savings discipline

As a Recurring Deposit scheme requires you to make fixed monthly investments, it helps inculcate a savings discipline. It is beneficial more so for salaried individuals who have multiple financial goals to fulfill with a fixed income.

  • Immunity from Interest Rate Swings

RD interest is calculated at a fixed rate throughout its tenure. So, if a bank offers an interest rate of 6.50% on your RD, interest calculation will be done at this rate irrespective of the changing market trends or change in your bank’s policies regarding the interest rate offered. You, therefore, do not have to worry about any RD interest rate reductions.

The interest income from Recurring Deposit is taxable, with TDS deducted by the bank at the rate of 10% if the income is above Rs. 10,000. In case your annual income is below the minimum exemption limit, you can save on this tax by providing form 15G to your bank. For senior citizens, form 15H is applicable.

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