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Understanding Recurring Deposit Interest Rates

Learn about RD Interest Rates to know if it’s a suitable investment option for you.

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Recurring Deposits (RD) have been a popular small savings tool primarily due to its guaranteed returns and low overall risk. The RD interest rate gets locked in when you open the account and you can make small regular deposits during the deposit tenure to create a large corpus. So, let’s understand more about how recurring deposits work, factors affecting RD interest rates, RD interest calculation formula and more. 

How Does a Recurring Deposit Work?

A recurring deposit or RD is a type of term deposit which allows investors to make regular deposits and earn guaranteed returns on their investments. While FD and RD interest rates are fixed and both investments provide assured returns to investors, there is one key difference. While a FD involves a single lump sum investment, a RD involves multiple usually monthly investments made over the account tenure. Currently the minimum and maximum investment period of a recurring deposit in India are 6 months and 10 years, respectively.

RD is ideal for inculcating a regular saving habit and it provides decent returns to the investor. This is the key reason why RD is considered as an ideal saving cum investment instrument for small investors. RD provides you returns at a pre-defined RD interest rate at the end of the tenure of the investment. At the end of your RD tenure, you are paid your initial invested capital back along with the interest you have earned from the RD. 

Formula to Calculate RD Interest

RD Interest Rates - Max Life Insurance

When opting for an investment in an RD, it is imperative that you know the RD interest rate as well as the RD interest calculation formula. It will help you determine the RD maturity amount you will be able to avail at the end of your investment tenure. The RD interest calculation formula is as follows:

A = P*(1+R/N)^(Nt)

where,

‘A’ stands for the RD maturity amount

‘N’ is the compounding frequency of the RD

‘R’ is the RD interest rate per annum

‘t’ is the RD tenure

‘P’ is the principal investment amount in RD

However, there is no need to crunch the numbers by yourself as you can use the online RD calculator to estimate your interest earnings in seconds.  

Types of Recurring Deposits

Now that you are acquainted with what an RD account is, how RD works, and how to calculate RD interest rates, it is important to have a brief about the types of RD accounts to get a better understand of the topic. Some basic types of RD accounts available in India are: 

Regular RD Account

Recurring deposits are offered by various banks to Indian citizens above the age of 18. You can choose to deposit a fixed amount of money for a predetermined period, usually ranging between 6 months to 10 years. RD interest rate can be computed on a simple or compound basis. At the end of your tenure, you can withdraw the lump sum amount. Some schemes also allow you to reinvest your money. A recurring deposit can be opened for as little as INR 10 per month. The RD interest rate for a regular recurring deposit usually ranges from 4.00% to 6.50% p.a.

RD Schemes for Minors

Kids are also offered recurring deposit schemes by various banks. The RD interest rates earned on these deposits are usually equivalent to the regular RD schemes or tend to be higher to inspire youngsters to invest and save.

Recurring deposits are offered by various banks to Indian citizens above the age of 18. You can choose to deposit a fixed amount of money for a predetermined period, usually ranging between 6 months to 10 years. RD interest rate can be computed on a simple or compound basis. At the end of your tenure, you can withdraw the lump sum amount. Some schemes also allow you to reinvest your money. A recurring deposit can be opened for as little as INR 10 per month. The RD interest rate for a regular recurring deposit usually ranges from 4.00% to 6.50% p.a.

RD Schemes for Minors 

Kids are also offered recurring deposit schemes by various banks. The RD interest rates earned on these deposits are usually equivalent to the regular RD schemes or tend to be higher to inspire youngsters to invest and save.


Senior Citizens RD Schemes

Typically, higher RD interest rates are offered by banks to senior citizens i.e. individuals over the age of 60 years. Usually, RD interest rates for senior citizen depositors are 0.50% higher per annum than the prevailing interest rate for investors aged less than 60 years.

NRE/NRO RD schemes

Usually, lower RD interest rates are offered for NRE and NRO recurring deposit schemes. Additionally, NRE/NRO accounts held by senior citizens are not offered a higher RD interest rate unlike senior citizen RD rates for resident Indians.

Factors that Affect Recurring Deposit Interest Rates

Before you consider opening an RD account, you should be aware of some primary factors that may affect your recurring deposit interest rates.

Type of account

Recurring deposit interest rates vary according to the type of account you hold. Regular savings accounts generally get a comparatively higher interest than the NRE/NRO accounts.

Tenure

RD interest rates also differ due to the tenure of your deposit. Medium-term recurring deposits such as 3 year deposits often earn a much higher interest rate. But, some banks and NBFCs (non-banking financial companies) may also offer lucrative RD interest rates on a 1-year deposit and/or 5-year recurring deposit.

Age

A higher RD interest rate is generally offered to senior citizens. Usually, the RD interest rate 0.5% higher per annum than the regular interest rate is the standard. Junior accounts also have a higher probability of earning a higher interest rate. This varies from bank to bank.

Choice of bank

There’s quite a variation between the interest rates offered by different banks. Currently, the top banks have recurring deposit interest rates starting at 7% per annum. Nationalised banks tend to offer a higher RD account interest rate of up to 8% per annum.

RD Interest Rates of Some Leading Banks in India

Now that you know how RD interest rates can vary based on various factors, the below table provides a snapshot of the current recurring deposit interest rate range provided by some leading banks in India:  

Bank Name

RD Interest Rate Range

Axis Bank

6.25% to 6.75%

HDFC Bank

5.75% to 6.75%  

State Bank of India

6.25% to 6.75%

Yes Bank

7.00% to 7.10%

ICICI Bank

6.oo% to 6.75%

Tax on Recurring Deposit Interest

Recurring Deposits are subject to Tax Deducted at Source (TDS). If the interest earned on FD AND RD exceeds INR 40,000 in a FY per Customer ID, TDS would be applied at 10% and would be directly deducted by the bank. One will be obligated to pay Income Tax on the interest earned from a Recurring Deposit according to the rate of the tax slab of the RD holder. If you fall into the no-tax limit income bracket, then it is advisable to submit Form 15G/15H to the bank so that you are exempted from any tax deductions.

Also, it is essential to note that the Tax Deducted at Source (TDS) will be applicable at the rate of 20% if you have not furnished your PAN information. The Tax Deducted at Source (TDS) may also vary depending on your annual income, your age bracket, and the amount of interest that you accrue on your Recurring Deposit (RD).

Recurring Deposits are subject to Tax Deducted at Source (TDS). If the interest earned on FD AND RD exceeds INR 40,000 in a FY per Customer ID, TDS would be applied at 10% and would be directly deducted by the bank. One will be obligated to pay Income Tax on the interest earned from a Recurring Deposit according to the rate of the tax slab of the RD holder. If you fall into the no-tax limit income bracket, then it is advisable to submit Form 15G/15H to the bank so that you are exempted from any tax deductions.

Also, it is essential to note that the Tax Deducted at Source (TDS) will be applicable at the rate of 20% if you have not furnished your PAN information. The Tax Deducted at Source (TDS) may also vary depending on your annual income, your age bracket, and the amount of interest that you accrue on your Recurring Deposit (RD).


Frequently Asked Questions (FAQs)

1. How do banks calculate the maturity amount on a Recurring Deposit (RD)? 

Banks calculate your maturity amount based on your installment amount, account type and the tenure you choose for the deposit. It also depends on the recurring deposit interest rate prevalent when you make your investment.

2. What happens in case you skip/default on your RD installment?

In most cases, your RD account will remain active in the event that you have missed your RD installment once. Having said that, if you default on more than a minimum number of installments, some banks will close your RD account.

3. Is the Recurring Deposit rate pre-determined?

Yes, similar to fixed deposits, the RD account interest rate is pre-fixed and varies according to your tenure. However, you are benefitted as the RD rate of interest is updated after a particular time, so each of your monthly installments may be eligible for a different RD rate of interest, which would then be compounded at the end of every quarter.

4. What is the eligibility criteria to open an RD account in India?

Residents of India and the members of the Hindu Undivided Family (HUF) can open an RD account in India. At the same time, NRIs can also apply for an RD account through the respective bank’s NRO and NRE accounts. Furthermore, Recurring Deposit accounts are also available for minors, provided it is under the guardianship of their parents so as to keep track of their finances.

5. What is the nomination facility in an RD account?

The nomination facility guarantees that in the event of any unforeseen circumstances arising with the account holder, the nominee is given the RD amount. However, whether your account is in a single name or a joint name, there is only one nominee allowed per RD account.

Sources:

https://www.hdfcbank.com/personal/resources/learning-centre/save/what-is-rd-account

https://economictimes.indiatimes.com/wealth/calculators/rd-calculator

https://www.centralbankofindia.co.in/en/recurring_deposit

https://www.incometaxindia.gov.in/pages/downloads/most-used-forms.aspx

https://www.livemint.com/Money/niXAqrWIDtA6GI0pQBQh6M/Three-things-to-know-about-recurring-deposit.html

https://cleartax.in/s/rd-recurring-deposits

https://www.livemint.com/Money/niXAqrWIDtA6GI0pQBQh6M/Three-things-to-know-about-recurring-deposit.html

https://www.bankbazaar.com/recurring-deposit-rates.html

https://economictimes.indiatimes.com/wealth/interest-rates/recurring-deposit-rates/rdinterestrate.cms

https://economictimes.indiatimes.com/wealth/interest-rates/recurring-deposit-rates/rdinterestrate/pageno-2.cms

ARN No: July22/Bg/12A

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