If you are looking to earn fixed returns by making regular small deposits over time, recurring deposit can be a good choice for you. Recurring deposits is a unique type of investment where you can choose to invest money in the form of installments to create a large corpus over time. ...Read More
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Abhishek Chakravarti
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Abhishek is a financial writer with over 6 years of experience in the BFSI sector. Prior to his current stint with Max Life Insurance, he has worked with leading fintech startups. He specializes in writing about taxation and various investment products like ULIPs, retirement plans, guaranteed investment plans, mutual funds etc.
Sahil Rawal
BFSI Expert
Sahil Rawal is a digital & brand management specialist with over 10 years of experience in Financial Services Industry. Life insurance professional with expertise in digital marketing strategy, website content marketing and brand communication designed to increase brand awareness, drive engagement & sales.
What is a Recurring Deposit?
If you are wondering what is RD?, read on to understand all the aspects of recurring deposits. RD deposits provide its consumers with high flexibility, wherein an amount of their choice can be invested every month. Recurring deposit accounts are offered by a majority of Non-Banking Financial Companies (NBFCs) and banks, with the tenure ranging from 6 months to a decade.
Types of Recurring Deposits
Regular Recurring Deposit Account
This recurring deposit account comes with a designated tenure and a set deposit amount. The chosen deposit amount cannot be changed.
Flexible Recurring Deposit
Flexible recurring deposits, as the name suggests, offer the flexibility and convenience of choosing the amount you intend to deposit in a whole month. A core amount must be chosen, but it can be changed based on the availability of the funds. The interest rate might also be slightly lower for this type of RD account.
Features & Benefits of Recurring Deposit
Here are some of the key features of recurring deposits: -
The recurring account and associated schemes aim to inculcate a habit of saving money amongst the consumers.
The minimum amount deposited in recurring deposits varies from one bank to another.
The minimum time for a recurring deposit account starts at six months and can last up to 10 years.
RD account offers an additional benefit of taking a loan against a deposit, i.e., using the deposit as collateral.
About 80 to 90 per cent of the value of the deposit can be given as a loan to the holder of the account.
The recurring deposit can be funded periodically via standing instructions given by the consumer to a bank to credit the RD account every month from their current/savings account.
Benefits of investing in an RD account
The return rate on recurring deposits is also attractive, thereby making recurring deposits a smart investment.
Some of the benefits of investing money in a recurring deposit account are as follows: -
A simplified investment product for investment
A recurring deposit one of the safest investment options available today. The concept of investing in an RD account is very simple.
Guarantee of returns
Unlike mutual funds and equity, recurring deposits offer guaranteed returns on the principal amount in the short term.
Choice of the term for investment and amount to be deposited
The recurring deposit tenure varies from 6 months to 10 years. The depositor can choose between short-term, medium-term, or long-term investment periods. Also, the minimum amount to be deposited to open an RD account is Rs. 100 in the case f the public sector banks and can range from Rs. 500 to 1,000 in the case of private sector banks.
Ease of withdrawal
A recurring deposit account offers a withdrawal facility for the account at any time for which the bank may charge a small penalty fee. It is a beneficial feature for the depositor if they need the money urgently.
Loan against recurring deposits
Banks offer the facility of taking a loan against recurring deposits, wherein the depositor can avail of a loan of 90-95 per cent of the total money in a recurring deposit account.
Returns on RD – Interest Earned
The rate of interest offered by banks on a recurring deposit account depends on factors like the tenure you choose. Most banks offer senior citizens a high-interest rate compared to regular citizens. Various RD investment schemes are available today, inclusive of special schemes offered by banks, to aid you in achieving your financial goals. The returns on an RD account can range from 4 per cent to 6.5 per cent.
Eligibility for a Recurring Deposit
All minors above the age of 10 years are allowed to open an RD account. The only requirement is proof of the name.
A minor below the age of 10 years or equal to the age of 10 under the guardianship of a local guardian is also eligible
A commercial organization, proprietorship, company, or a corporate is also eligible.
Any government organization.
Important Factors to Keep in Mind Before Getting a Recurring Deposit
A recurring deposit is nothing but an investment product. The principal amount invested earns regularly, and the lump sum amount is handed over to the depositor at the time of maturity of the RD account. Although recurring deposits are safe investments, here are some factors that one must consider before an RD investment.
The interest rate on the recurring deposit account
The rate of interest offered by banks on different terms may vary. The interest rate offered generally ranges from 3.5 per cent to 5.5 per cent.
Term period of the RD account
One method of earning on the capital invested in case of recurring deposits is to invest for a period that provides a high interest rate.
The facility of premature withdrawal
All the banks that offer the facility of opening up an RD account also come with the provision of premature withdrawal. The payable interest is calculated based on the tenure completed. The bank may also charge a premature withdrawal penalty. Therefore, before making an RD investment, it is important to go for offers with high-interest rates and low fees on premature withdrawal.
Documents Needed to Open an RD Account
The documents required to open a recurring deposit account are as follows:
An application form obtained from the bank
Passport size photographs of the applicant
Address proof and identity proof of the applicant
KYC documents, if requested
How to Open an RD Account Online
Here are the simple steps you can follow to open an RD account online:
Once the net banking is activated, log in to your respective account using your ID or username and passwords to access your online account.
Choose the option for opening an RD account. While opening an RD account online, you'll need to provide details, for example, the amount you wish to deposit each month and the tenure of the deposit.
After this, link your savings account to the RD account from which it is possible to transfer funds regularly and opt for a standing instruction placement mandatory of automatizing payments by the due date.
How to Open an RD Account Offline
Opening an RD account offline is not a difficult task. All that is needed to be done is to visit the bank and fill up a form for opening a recurring deposit account. You will need to fill up the required details and submit the same along with a cheque for the instalment amount.
Opening an RD account in a bank wherein, you do not have an account would require you to provide the KYC documents and other details. You will be required to decide the RD tenure, the nomination details, instalment amount and the maturity amount.
How to Close RD Account
A Recurring Deposit can be easily closed through offline method, net banking or mobile banking. You need to be physically present at the bank branch and submit a closure request for the RD account in case of the offline method.
In the case of net banking and mobile banking, you need to log in to the bank's facility, and follow the steps required to close the recurring deposit account.
In all three cases, the amount at the time of closure will be deposited in the same savings account from where the RD deposit amount was collected.
RD Renewals and Deposits
At maturity, the recurring deposit can be directed towards withdrawal or renewal. The clause for renewal is available on the auto-renewal feature, where the financial institution or the bank will automatically renew the deposit for the same period and at the same interest rate. RD renewals are a great option if you have invested funds without a particular unforeseen need.
RD Calculator
An RD account calculator helps an individual calculate the returns on the investment. It helps one estimate the returns based on the RD interest rates and tenure to satisfactorily fulfil investment goals. A recurring deposit investment is a complicated investment which can be difficult to understand. An RD calculator helps calculate the returns before investment with ease, and let you make informed decisions to generate optimal returns.
Conclusion
Now since you understand how a recurring deposit works we would like to introduce a product that has both guaranteed*# returns and life cover.
Recurring accounts are like term deposits that allow you to make deposits regularly and earn returns on the investment.
Banks provide online RD calculators that help calculate the maturity amount in a hassle-free way.
Yes, investors can claim tax deductions on a yearly basis
Yes, it is possible to add nominees to an RD account.
Unfortunately, recurring deposits come without tax exemptions. Income tax has to be paid by the investor on the interest earned in the case of RD.
Yes, TDS is applicable on an RD account. TDS is deducted at 10 % of the earned interest, which normally exceeds INR 40,000.
Six months is the minimum tenure for recurring deposits.
An individual can earn a recurring deposit account interest rate, ranging from 2.5 to 8.5 per cent.
The minimum amount required to open a recurring deposit account is Rs. 100 for public sector banks and Rs. 500- 1,000 for private sector banks.
All Indian citizens, adults, minors, government organizations, private sector companies and a sole proprietorship can open an RD account.
Yes, banks in India provide additional interest rates on RD to senior citizens.
Yes, it is possible to withdraw recurring deposits before the end of the term
The banks allow depositors to withdraw the money invested before completing the maturity period via net banking or simply visiting the respective bank.
Yes, it is possible to save tax on recurring deposits. These savings can be made during each financial year.
