31 May 2024 | By INDIE
The choice of the right savings and investment products is the key to financial success. Banks and financial institutions offer various savings products to help individuals improve their financial well-being. While savings products like term deposits and recurring deposits are safe and secure investment tools that provide regular interest income, others, like recurring deposits, can instill savings habits among individuals and be instrumental in helping them achieve their goals.
This article delves into the comprehensive details of recurring deposits or RD accounts. It aims to provide an understanding of what is RD and what are its benefits.
Recurring deposits are popular savings products offered by banks that allow individuals to deposit a fixed amount of money every month for a specific period at a predefined rate of interest. Unlike fixed deposits, an RD account allows you to invest in a disciplined manner, encouraging you to develop regular savings habits.
Recurring deposits are suitable for individuals who wish to accumulate money for short-term goals such as to buy a car, a foreign vacation, or as an emergency fund. The term of the RD may range from 6 months to 10 years. However, the interest rate on recurring deposits may vary for each tenure and from one bank to another.
It is quite easy and convenient to open an RD account. If you already have an online bank account, you can book RD online without having to provide any additional documents in most of the banks.
Also read: Savings Made Easy: Top Features of Banking Apps in India
The following are the features of recurring deposits:
1. Predetermined fixed monthly deposits consistently inculcate savings habits.
2. RD offers a predefined fixed rate of interest for the chosen tenure. The rate remains constant throughout the period. Like fixed deposits, recurring deposits also offer special rates for senior citizen investors.
3. RD offers flexibility to choose the tenure depending on your investment need.
4. Interest on recurring deposits can be calculated on a simple interest or compound interest basis, depending on the recurring deposit you choose or based on the bank’s policy. You can choose to take interest payout regularly or get the total interest at the time of maturity.
5. Depending on the bank’s policy, recurring deposits can have minimum and maximum deposit limits. The minimum limits are usually low, making RDs an accessible savings product for all.
6. Though RD is designed to encourage regular savings, it also offers you a premature withdrawal option to avail the funds during emergencies. However, it may attract penalties and interest benefits will be given on a pro-rata basis.
7. RD account offers you the facility of nomination and auto-renewal that renews the RD automatically on maturity and loan against RD.
8. Interest on recurring deposits is taxable as per the prevailing Income Tax Law.
1. You can start your monthly investment with as low as INR 500 for an attractive rate of interest. However, the maximum deposit limit is INR 2 crores into the RD account.
2. The RD can be booked in multiples of 100s
3. The tenure ranges from 12 months to 120 months
It is important to note that both individuals and non-individuals can book recurring deposits. It requires only simple KYC documents and an application form to open an RD account. Your deposit account can be funded monthly by setting up a standing instruction from your savings account.
Also read: Secure, swift, and smart: Online savings accounts demystified
To conclude, recurring deposits are excellent savings tools for both individuals and non-individuals to meet their emergency fund requirements or any other financial goals. It is one of the safe, convenient, and accessible investment options that help you stay financially disciplined by saving consistently for a healthier future.
