Types of Recurring Deposit(RD)

A Recurring deposit account is a type of account opened in banks, NBFCs, or Post offices, where a depositor has to deposit a fixed amount of money every month for certain tenure. This is a flexible format meant for persons who like to deposit a recurring amount on a monthly basis, with the purpose of getting a lump sum after the tenure is over. There are different types of recurring deposit accounts available by most of the banks and Nonbank financial companies (NBFCs) in India with different tenures and rates of interest.

Types of Recurring Deposit Account – Overview

Recurring deposits are available in different types, each suitable for persons with different financial plans. However, there are some recurring deposit types that are provided by most of the banks in India. Below given is the list of such RD types:

1. Regular Recurring Deposit Account: This RD scheme is available in most Indian Banks and NBFCs. One can open an account if he/she has attained 18 years of age. To open an account, you have to choose a recurring amount and a tenure. Interest is calculated either on a simple or compound basis. No additional money can be deposited during the ongoing tenure; the lump sum can be withdrawn at the end of the tenure. The minimum deposit amount and the offered tenures vary from bank to bank.

2. RD Account for Minors: Some banks also allow individuals under 18 years of age to open an RD account under the supervision of their parents or guardians. Parents can make use of the money to invest in the education and other needs of their children. The returns under this scheme are either similar to regular accounts or maybe higher.

3. Senior Citizens Recurring Deposit Account: RDs can be availed by senior citizens as well; Most of the banks provide a higher rate of interest to senior citizens than the regular rates. The minimum amount and the tenure are set by the bank for this. The interest is compounded on a quarterly basis. The rate of interest offered by most of the banks is an additional 0.50% to 0.75% as compared with the regular rates.

4. Tax Saving Recurring Deposit Account: The interest earned on a recurring deposit account is taxable based on the interest amount. The amount of Tax Deductible at Source (TDS) is subject to the income per annum of the depositor. The different income slabs and the TDS applicable on it are:

• If the Annual Income is Less than Rs.2.5 Lakh: People who are earning less than Rs. 2.5 Lakh per annum, the TDS applicable is 10% of the interest earned on the recurring deposit account if the interest earned on the principal exceeds Rs.10,000. The tax on the interest can be avoided by claiming a refund of the TDS deducted. One can submit Form 15G to the income tax department to do so.
• If the Annual Income ranges from Rs.2.5 Lakh to Rs.5 Lakh: For people earning an annual income ranging between Rs.2.5 Lakh to Rs.5 Lakh, the TDS applicable is 10% of the total income earned as interest on the principal amount in the recurring deposit account although it should exceed Rs.10,000.
• If the Annual Income ranges from Rs. 5 Lakh to Rs. 10 Lakh: For people with annual Income ranging from Rs.5 Lakh to Rs.10 Lakh. The income tax to be paid by the person earning an annual income between Rs.5 lakh and Rs.10 Lakh is 20% of the total income. The banks deduct only 10% TDS which implies when the person files the ITR, the tax has to be paid at the rate of 10.3%.
• If the Annual Income is more than Rs.10 Lakh: For people with more than 10 lakh annual income, an income tax is to be paid by the person earning an annual income between Rs.5 lakh and Rs.10 Lakh is 30% of the total income. The bank will deduct only 10% TDS which means when the person files the ITR, the tax has to be paid at the rate of 20.6%.

5. NRI/NRE Recurring Deposit Account: Banks also provide the non-residential Indian with options to open a recurring deposit with NRE/NRO Recurring deposit account. NRIs can earn a substantial rate of interest and can make huge savings with small monthly investments. They can choose from either NRE or NRO accounts. Let’s have a look at what kind of accounts are:

• Non-Resident External (NRE) Account: Under this savings scheme, the investments made towards deposit installments are debited from the NRE accounts. The income is earned outside India. Indian Rupees cannot be deposited into this account, one can deposit only foreign currency which is then converted into Indian Rupee at the time of deposit. An NRE, or short for a non-resident external account, where the accrued interest is free from the taxes in India. Furthermore, the account can also be moved to the investor’s home country seamlessly.
• Non-Resident Ordinary (NRO) Accounts: An NRO account is a savings or current account operated in India that helps NRIs manage income earned in India such as rent, dividends, or pension from abroad. The depositor can deposit and manage accumulated rupee funds conveniently with the help of an NRO account. Foreign currency which is deposited into the NRO account is converted into Indian Rupees. Any NRI can open an NRO account. For these types of RD schemes, the investments made towards the deposit installments can either be debited from NRE or NRO accounts. NRO is a non-resident ordinary account. The interest earned on NRO RDs is taxable at a rate of 30%, plus the additional CESS. This is, however, repatriable and subject to certainly featured requisites.

Benefits of RD Accounts

• It instills the habit of saving.
• If you miss an RD payment for a month, no penalty is levied.
• Expect a higher interest rate than that of a savings account.
• A recurring deposit account can be opened for as little as Rs.100.
• The process of opening an RD account is simple, especially if you already have a savings account with the bank.
• The documentation procedure is straightforward. Existing members, for the most part, do not need to provide any documentation.
• Excellent savings tool for achieving your short-term objectives.

Flexi RDs

Flexi Recurring Deposit schemes are a sort of Recurring Deposit that allows the depositor to invest a variable amount of money at his or her discretion. They allow the depositor to select both the core investment amount and flexible payments in multiples of the core installment amount.

This system allows depositors to choose how much to invest each month based on their financial situation while keeping a consistent interest rate. The interest rate due on the core amount is fixed, whereas the interest on the core multiples amount is computed based on the period of the investment.