A recurring deposit (RD) is a popular investment option where an investor deposits a fixed sum of money at periodic intervals for a fixed tenure. The interest rates on RDs are fixed, but generally, they offer higher returns than savings accounts. RDs are flexible investment options, and the interest earned is taxable. In this article, we will learn about different aspects of recurring deposits.
What is a recurring deposit?
A recurring deposit is a term deposit offered by many Indian banks and post offices that allows people to make regular deposit into their recurring deposit account and earn decent interest. It is an investment tool that provides flexibility and ease of investments to individuals. RDs are different from fixed deposits as they are flexible in most aspects. An RD account holder can choose to invest a fixed amount each month instead of investing a lump sum amount at once.
Features of recurring deposit
- The minimum deposit amount varies between financial institutions, with some accepting amounts as low as Rs. 10.
- The deposit period ranges from a minimum of 6 months to a maximum of 10 years.
- The interest rate varies among different financial institutions but generally it ranges from 4% to 8%.
- Some financial institutions allow premature withdrawal but with some penalty charges. In some cases, they may not allow premature withdrawals at all. Make sure to check the terms and conditions before investing.
- Investment in RD account can be deposited periodically through standing instructions. Customers instruct the bank to credit the RD account every month from their current or savings account.
Types of recurring deposits
- Regular RD accounts
Tailored for Indian residents aged 18 years or above, regular RD accounts facilitate fixed monthly deposits over a predetermined period. The interest calculated using compound or simple interest methods, depends on the account's tenure.
- RD accounts for minors
Accounts for minors, below 18 years, can be opened under parental or guardian supervision. Like regular RDs, fixed monthly instalments and a specified tenure are established at account initiation, with returns comparable or slightly higher than regular RD.
- RD accounts for senior citizens
Different financial institutions offer specialised RD accounts for senior citizens (aged 60 and above), providing potentially higher interest compared to regular accounts. Interest compounds quarterly in these accounts, catering to the financial needs of the senior citizens.
- NRE/NRO RD accounts
Non-Resident Indians (NRIs) can opt for Non-Resident External (NRE) and Non-Resident Ordinary (NRO) RD accounts. These accounts enable NRIs to earn competitive interest and systematically invest in recurring deposit.
How to open an RD account online
- Log in to your account via net banking or mobile app.
- Click 'Open an e-RD Account' on the dashboard.
- Specify the account number, instalment amount, and duration. Check the applicable interest rate and nominate a beneficiary for account proceeds.
- Tick the checkbox to agree to the terms and conditions.
- Submit the application.
- A confirmation message will be displayed, and an email with the RD receipt will be sent to your registered email address. The specified amount will be debited.
Note: This process of opening an RD account online may differ for different financial institutions.
Documents required to open a recurring deposit account
- Application form: Complete the designated application form provided by the financial institution.
- Photograph: Attach passport-sized photographs of the account applicant.
- ID and address proof: Furnish a valid ID proof (Aadhar card, passport, voter ID, or driver's license) and an address proof (utility bill or Aadhar card).
- KYC documents: Provide KYC documents as per the financial institution's requirements.
Important factors to consider before applying for Recurring Deposit
- Interest rate
One of the primary factors to consider is the interest rate offered by the financial institution. Interest rates may vary among financial institutions, and a slightly higher rate can significantly impact the returns on your investment. Compare rates across different financial institutions to make an informed decision.
- Tenure options
RDs come with varying tenure options, ranging from a few months to several years. Assess your financial goals and choose a tenure that suits your needs. Keep in mind that longer tenures generally give higher interest rates, but they also mean committing to a more extended saving period.
- Penalty for premature withdrawal
Most financial institutions provide the option for premature withdrawal. If you opt for an early withdrawal, the interest will be calculated based on the completed tenure, and the financial institution will impose a penalty. Therefore, it is advisable to select a financial institution with a higher interest rate and a lower penalty on premature withdrawal before making your investment decision.
- Minimum and maximum deposit limits
Different financial institutions may have different limits for minimum and maximum deposits. Ensure that these limits align with your financial goal. Some financial institutions may allow flexible deposit amounts, accommodating changes in your monthly budget.
- Tax implications
Consider the tax implications of the interest earned on your RD. TDS (Tax Deducted at Source) is applicable if the interest income exceeds a certain threshold. Understanding the tax implications will help you plan your finances better.
Bajaj Finance FD vs Recurring deposit
|Bajaj Finance FD
|Up to 8.85% p.a.
|4% to 8%
|Rs. 100 (vary among different financial institutions)
|12 months to 60 months
|6 months to 10 years
|TDS is applicable if the interest earned exceeds Rs. 40,000
TDS is applicable if the interest earned exceeds Rs. 10,000
Recurring deposits serve as an easy and secure investment option, fostering financial discipline while catering to diverse needs. Whether for minors securing their financial future or senior citizens seeking additional returns, RDs provide a structured path towards wealth creation.