Recurring Deposit: Meaning, Features, Benefits, and More

Recurring Deposit (RD) is one of the most convenient and safest options to get a decent return on your investment. All you have to do is deposit a specific amount of money every month into your RD account. It is convenient because you can open an RD account with any bank or post office by following simple steps, choosing the amount of instalment and tenure, and starting investing. It is also safe because you will get assured returns.

It is one of the best saving-cum-investment instruments available. Let us learn its meaning, features, benefits, types, etc. in more detail.

What is a Recurring Deposit?

A Recurring Deposit (RD) is a type of term-deposit which allows users to make regular deposits and earn good returns on the investment. The rate of interest remains constant throughout the tenure and it is decided at the time of opening the RD account. Investing in RD is a safe investment option as you earn decent and assured returns. The tenure usually varies from six months to 10 years.

RDs are most suitable for achieving short-term goals. You have the flexibility to invest the amount of your choice at regular intervals and choose the tenure as per your goals.

You do not need to invest a lump sum amount, which is a major requirement in the case of a fixed deposit (FD). Many banks, post offices in India offer the facility of RD accounts. The minimum amount requirement and the rate of interest is different for each financial institution. RD is a good investment option for salaried people who have a fixed monthly income.

Now let us discuss the features of RDs.

Features of RDs

• Low Entry Barrier: The minimum amount required for account opening is as low as Rs 100, but some banks keep the minimum amount at Rs 1,000. Monthly instalment can be as low as Rs. 50 for RD.
• Flexible Tenure: The tenure varies from six months to 10 years. 
• Can be Pledged as Collateral: You can use your RD investments as collateral for loans. Loan amount is generally  80–95% of the total deposit value. However, the amount may vary as per the bank rules.
• Higher Returns for Senior Citizens: Senior citizens can avail higher interest depending on the criteria of each bank, post office.   
• A single account holder can open multiple RD accounts.
• Premature withdrawals are allowed, but a penalty is charged.
• Flexible Lock-in: The lock-in period of RDs varies from 30 days to 3 months, depending upon the policies of each bank, post office.  
• FD-Like Interest Rates: Interest rates on RD are similar to fixed deposit (FD) schemes but are higher than regular savings accounts. The interest rate varies from 5% to 8%, depending on the criteria of each bank, post office. 

Types of RD Accounts

Regular RD accounts 

This type of RD is suitable for you if you’re an Indian resident aged 18 years or above. You can choose a monthly instalment amount and tenure. After paying monthly instalments for the predetermined tenure, an account holder earns interest on the investment amount.

The lump sum can be withdrawn after the end of the tenure. There is no scope for changing the monthly instalment.

RD accounts for Minors

This type of RD allows individuals aged below 18 to open a RD account. However, this must be carried out under the supervision of the parents or guardians. While opening an RD account for minors, the monthly instalment and tenure are decided. Upon maturity, you can use the lump sum amount for your minors’ education or to fulfil other needs. 

RD accounts for Senior Citizens 

Many banks, NBFCs, and post offices provide dedicated RD accounts for individuals who are aged above 60 years. Most of them offer higher interest rates compared to regular RD accounts. 

Usually, the interest rates are higher by 0.25% to 0.75%, depending upon the criteria of each financial institution. The interest is calculated on a quarterly/half yearly compounding basis.

NRE/NRO RD accounts

This type of RD is for Non-Resident Indians (NRIs). NRIs can open Non-Resident External (NRE) and Non-Resident Ordinary (NRO) RD accounts to save money earned from income sources inside or outside India.

NRE RD account is an RD account for NRIs who earn income from outside India. The instalment is deposited in a foreign currency and converted to Indian Rupee. The interest earned through this account is not taxable in India. In addition, the account holder can seamlessly transfer the NRE account to their home country.      

An NRO RD account is an RD account for NRIs who earn income in India. These income sources may include rents, pension, dividends, and others. The interest earned through this account is taxable in India. The rate of tax is 30%, along with an additional CESS.

Benefits of Recurring Deposit

• RDs help instil the habit of saving.  You will also earn higher interest than a regular savings bank account.  
• There are almost no risks involved in investing in RDs, so you will get assured returns at the predetermined interest rate. 
• The process of opening an RD account is simple and easy. If you already have a savings account in the bank, you can log in through net banking and open an RD account. Moreover, you can visit the bank, fill out an application form, and open an account. Many banks do not ask for additional documents if you have a savings account with them.
• RDs are the best options for achieving your short-term financial goals as the tenure can be as low as 6 months. Moreover, it is one of the best options for salaried people or individuals with fixed monthly incomes.
• You can withdraw money and interest before the maturity date if you need money for emergency purposes. There is a penalty fee though, but you can have a lump sum amount in your hand.

How to Open an RD Account?

An individual can open an RD account in two ways, online and offline. Let us discuss each of them.

Steps to open an RD account online:

• Log in to your net banking account or app.
• Choose the “Open an e-RD Account” option.
• Provide the bank account details for monthly instalment deduction. Then state the amount of instalment and tenure.
• Specify a nominee for your RD account.
• Do not forget to check the maturity amount.
• Read all the terms and conditions before submitting the application.
• Submit your application.
• Upon submission, you will receive a text message on your registered mobile number and an email on your registered email ID about confirmation and an RD receipt. The instalment amount will be deducted from the provided account.

Steps to open an RD account offline:

• Visit the nearest branch of the bank in which you have your savings account.
• Fill out the RD application form with relevant details such as the instalment amount, tenure, nominee, and other important information. Mention the mode of payment in the form.
• Do not forget to check the rate of interest.
• Once you submit the form, please pay the first instalment with cash or cheque.
• Your account will be opened within the specified timeframe.

Conclusion

Recurring deposits present a simple, easy-to-use, and safe option for investing. This is why many investors prefer investing in RDs to earn a decent return on the investment. . In addition, an RD account is helpful in instilling the habit of saving and gaining higher returns than a savings bank account. RD is an excellent option for salaried individuals or those with fixed incomes to save money towards achieving short-term goals.

FAQs about recurring deposit