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Recurring Deposit

Recurring Deposit is a special kind of Term Deposit offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits.

What is Recurring Deposit ?

A Recurring Deposit or RD as it is ../../commonly called is a unique term deposit offered by banks. It is an investment tool which permits those with an ability to make regular deposits earn decent returns on their investment. Basically consisting of regular deposits and an interest component, a Recurring Deposits provides flexibility and ease of use to individuals. Account holders can choose to invest a particular amount each month, ensuring that they have sufficient income for an emergency, with the RD earning decent interest on the amount. Given the fact that FDs are rigid and are not ideal for short terms, a Recurring Deposit is an ideal investment cum savings option.

Features and Benefits:

  • Interest: The interest you earn on a recurring deposit depends on the amount you contribute and the tenure of the deposit. The rates of interest offered by banks is similar to the interest rates offered on term deposits.
  • Tenure: The tenures offered will differ between banks. Usually the minimum tenure is 6 months and the maximum tenure is 10 years.
  • Maturity: Upon maturity, the bank will pay you the sum you have saved plus interest accumulated. This money will either be paid in cash or be credited to your bank account. The maturity value of your deposit will be indicated when you open the RD account.
  • Loan Options: Banks accept RDs as collateral to avail of loans. One can take a loan of 80% to 90% of the value of the deposit.
  • Tax Deducted at Source: Recurring Deposits recently were brought under taxable income. With effect from June 2015, tax deducted at source (TDS) is applicable on recurring deposits. If the interest on these deposits exceeds Rs. 10,000 per annum, then 10% would be deducted at source. The RD holder will also have to declare interest earned and pay income tax on this amount.
  • Late Payments: Banks levy a penalty if you miss the monthly deposit by the due date. There are some banks that waive this penalty.
  • Premature Withdrawal: Most RDs can be closed ahead of the maturity date. A penalty charge plus a penalty on the interest rate may be levied.

    • Why invest in a Recurring Deposit Account?

  • You Can Start Small: Find investing a large amount in fixed deposit difficult? Invest small sums of money and earn interest at the same rate as a fixed deposit.
  • Rate of Interest is Fixed: The rate of interest is fixed when you invest in a recurring deposit. You are insulated from a swing in the interest rates.
  • Forced Saving: You invest a fixed amount of money and can withdraw your money, only after a certain fixed time. You are forced to save.
  • Plan your Goals: You can set money aside for short-term goals such as marriage expenses, buying a car or even going on a holiday.

    • Important Factors of Recurring Deposit:

    Penalty Charges for Late Payment

    Find out the penalty charges for late payment. If there are charges levied, it is best not to miss a payment. This could reduce the interest you earn.

    Loan against Your Deposit

    Taking a loan against your deposit should be done only if absolutely necessary. The interest you pay on the loan might be much more than what you earn. It might be more feasible to break the deposit. Research and find out which option would be better.

    Easy and Convenient

    Opening RDs online are easy and convenient. The money will automatically be deducted from your savings or current account.

    Never Miss a Payment

    Setting standing instructions will ensure that you never miss a payment. But always ensure that your bank account is funded sufficiently.

    Interest Chart

    View the interest chart before you open a recurring deposit. Banks offer different rates for different tenures. You can choose a tenure that gives you the best interest rate.