Types of Recurring Deposit Accounts
A recurring deposit, commonly known as RD, is a deposit scheme offered by banks and post offices. It is an investment tool that allows you to save in instalments over a specified tenure. You can choose the amount you want to deposit, the frequency of the deposit, and the term you wish to deposit.
RDs yield guaranteed returns and protect your savings from market-linked volatility. You can choose to get the interest income as and when it accrues or accumulate it over the deposit tenure. The minimum investment amount of an instalment is as low as INR 100 per month and there is, usually, no maximum limit.
Moreover, there are different types of recurring deposit accounts that you can choose from. Let’s understand these types in detail.
Types of RDs
As mentioned earlier, there are different types of RD accounts offered by banks and post offices. These are mentioned below –
| Type of RD | Meaning |
| Regular Recurring Deposit Account | The most common RD scheme – a regular recurring deposit account – is an account in which a fixed amount is deposited regularly (every month) for a specified tenure to get a fixed interest rate on the investment amount. A regular RD account is for Indian residents aged 18 years or above. |
| Senior Citizen’s Recurring Deposit Account | A senior citizen’s RD account has similar features as a regular RD account, with an additional benefit of an extra interest rate of 0.25% to 0.75% over the standard rates. It is available only for individuals aged 60 years or above. You can save a fixed amount of money every month for a chosen tenure and earn a guaranteed interest rate on your savings. |
| Recurring Deposit Account for Minors | RD account for minors is for children under 18 years old. Parents can invest on behalf of their minor child. Though the account is opened in the name of minors, it should be under the supervision of his/her legal guardian or parents. |
| NRE/NRO Recurring Deposit Account | Even non-resident Indians can open a recurring account in India. They can invest either through Non-Resident Ordinary (NRO) or Non-Resident External (NRE) RD accounts. They can choose to invest any amount monthly and get guaranteed returns on them. NRIs can also deposit in foreign currency in the NRE RD account; the amount is converted to Indian currency at the time of depositing. In contrast, under an NRO account, the amount can be deposited only in Indian currency. |
| Flexi RDs | Flexi RDs allow you to deposit variable amounts in the account. Unlike other recurring deposit accounts, there is no fixed amount of investment in Flexi RDs. You can select the amount that you want to deposit every month. This is beneficial because you can make higher deposits with surplus funds. On the other hand, if you are suffering a cash crunch, you can reduce the deposit amount. Further, certain banks also allow you to skip payments in such a case. Interest rate might change basis investment tenure as it varies bank to bank. |
Concluding Thoughts
A recurring deposit is one of the most accessible and convenient savings tools for those who want to save a part of their monthly income. Small investments in RD accounts can help you accumulate a large corpus to meet your financial goals. You can earn guaranteed interest rates on your deposits without investing a considerable lump sum.
Moreover, the different types of recurring deposit accounts offered by financial institutions allow you to choose a scheme that best suits your requirements. You can opt for a minor RD account to save for your child. Similarly, the senior citizen scheme can generate higher returns for senior citizens. So, assess your needs and pick the right recurring deposit account to help you save for the funds you need.
FAQs related to types of Recurring Deposit Accounts
Does a recurring deposit provide tax benefits?
No, RDs are not tax-free. The investment in a recurring deposit account is not eligible for tax savings. It forms a part of your taxable income. Moreover, the interest income that you earn on the deposit is also taxed at your income tax slab rates.
Is TDS deducted from RD’s interest income?
No TDS is deducted if the aggregate RD interest income in a financial year is up to Rs.40,000. For senior citizens, the limit is Rs.50,000. The rate of TDS deduction is 10% if you provide your PAN details; 20% if you don’t.
If your aggregate taxable income is below the threshold limit of Rs. 2.5 lakhs, you can fill out and submit Form 15G (15H for senior citizens) to avoid TDS deduction on your RD interest income. The form would be required every financial year when your RD’s interest income is eligible for TDS deductions.
How to open an RD account?
You can open an RD account online or offline. For offline account opening, visit the financial institution branch where you want to open the account. Fill and submit the account opening application form, the relevant documents, and the amount of the first instalment. The financial institution would verify the documents and open your account.
For the online process, you can log in to your net banking facility and apply for account opening if you want to open the RD account with your existing bank. You can open the account from its official website if you choose another bank. Most banks also have mobile applications that allow RD account opening.
What documents are required for opening an RD account for minors?
To open an RD account for a minor, you must submit the his/her birth certificate issued by the Gram Panchayat/Municipal Corporation/ Notified Area Committee, along with two recent passport-sized photographs. Your KYC details would also be required since you would be depositing on the minor’s behalf.
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