A recurring deposit or an RD account helps you build your savings in a safe and secured manner. Most banks offer RD accounts, wherein you can deposit your money on a monthly basis till a predetermined tenure set by you and gain a certain interest on it. It is often published as suitable for all ages as it is a safe and secure investment option.
Continue reading to learn more about recurring deposit accounts and why you should invest in them.
A recurring deposit (RD) is a term deposit account offered by banks. It is intended for people seeking a safe and secure fixed income avenue to grow their wealth in a systematic manner.
Investors need to make regular monthly deposits for a predetermined time. They can choose the deposit tenure and the monthly deposit amount based on their budget and financial goal, for which the interest payout is pre-decided. In recurring deposit accounts, interest is compounded on a quarterly basis. The flexible, small and pocket-friendly monthly savings allows the depositor to receive a lump sum at maturity of the recurring deposit account.
The process for opening a recurring deposit account is fairly simple. Individuals with a savings or current bank account can open a recurring deposit account by visiting their nearest branch. In a recurring deposit account, the depositor allows the bank to deduct a monthly deposit of a predetermined amount from their existing bank account.
The interest in an RD account is compounded quarterly, and when the account matures, they get a sizable surplus over the principle plus interest. The primary difference in this type of investment account is that each month, instead of making a large deposit, you can deposit a specific amount into your chosen account.
This sum can be small but will fit your budget. However, banks allow premature withdrawal with some penalty set by the bank.
There are four different types of recurring accounts offered by banks and other financial institutions:
A regular RD account is intended for Indian residents who are 18 years of age or older and who have a consistent amount to invest. Regular recurring deposit allows the account holders to deposit a fixed sum once a month for a set tenure to earn a fixed interest on the deposited amount upon maturity.
A regular RD account is intended for Indian residents 18 years of age or older and with a consistent amount to invest. The regular recurring deposit allows the account holders to deposit a fixed sum once a month for a set tenure to earn a fixed interest on the deposited amount upon maturity.
Banks offer special RD accounts for people over the age of 60. Senior citizens may receive higher interest on their RD accounts than regular depositors per the terms and conditions of the bank. The rest of the process, whether in terms of duration, interest calculation, or investment amount, remains the same.
Non-Resident Indians (NRIs) can open Non-Resident External (NRE) and Non-Resident Ordinary (NRO). NRIs can then invest in an RD using an NRE or NRO deposit account. The most significant advantage for NRIs to deposit money in an RD account is that they don’t have to pay any taxes on this account in India.
Also Read: Fixed Deposit 101: Should You Invest In FDs?
Recurring deposit interest rates for different banks are as follows:
|1 year||2 years||3 years||4 years||5 years||More than 5 years|
|Bank of Baroda||4.90%||5.10%||5.25%||5.25%||5.25%||5.25%|
|Bank of India||5.00%||5.05%||5.05%||5.05%||5.05%||5.05%|
|Central Bank of India||4.90%||5.00%||5.00%||5.00%||5.00%||5.00%|
|City Union Bank||5.00%||5.25%||5.00%||5.00%||5.00%||5.00%|
|Indian Overseas Bank||5.20%||5.25%||5.25%||5.25%||5.25%||5.25%|
|IDBI Bank||5.05%||5.20%||5.40%||5.40%||5.25%||4.80% to 5.25%|
|Punjab National Bank (PNB)||5.00%||5.10%||5.25%||5.25%||5.25%||5.25%|
|State Bank of India (SBI)||4.90%||5.10%||5.30%||5.30%||5.40%||5.40%|
The eligibility criteria for opening a recurring deposit account are as follows:
You can open an RD account online by following the steps mentioned below:
Step 1: Access your online banking facility or mobile banking account and log into your account.
Step 2: Open the dashboard and click the ‘Open an e-RD Account’, ‘investment option’ or similar option mentioned on the screen.
Step 3: Enter the account number from which the monthly deposit amount will be debited, the instalment amount, and the tenure for your recurring deposit account.
Step 4: Check the applicable interest rate and mention the nominee for the account proceeds.
Step 5: After checking the maturity amount, click the checkbox to confirm that you agree to all the terms and conditions as per the bank guidelines.
Step 6: Send in your application. You will see a confirmation displayed on the screen, and an email with the recurring deposit receipt will be sent to the registered email ID. The specified amount will be deducted from the set account.
You can open a recurring deposit account offline by following the instructions mentioned below:
Step 1: You can visit your local bank branch where you already have a savings account.
Step 2: Fill out the RD application form, fill in the instalment amount, mode of payment, tenure, and mention a nominee for the account proceeds.
Step 3: Following that, you must provide additional formal documents such as a PAN card, proof of residence and other basic information. Then pay the first monthly deposit.
Step 4: Your application will be processed within a given time frame specified by the bank representative.
If you have a recurring bank deposit account and want to close it before its maturity you need to follow the steps mentioned below:
The first step is to complete an RD Account Closure Form. You can do this by visiting your branch and filling out the RD account closure form and giving a properly signed copy to the branch manager/in-charge.
All account holders have to attach a copy of their KYC documents with the RD closure form, including a copy of their PAN, which also serves as their proof of identity and address.
When you apply for a bank RD, the bank provides you with a deposit certificate or receipt as proof of your recurring deposit account. It contains information related to your recurring account such as the RD amount, tenure, and interest rate. You must submit a duly signed RD certificate or receipt to your branch, along with the closure form.
The bank will then verify the documents, and if everything is in order, you will be asked to withdraw the balance of your RD account. You can withdraw cash, have the bank issue a check or demand draft in your name, or have the money transferred to another account. You can also close it through an online banking platform.
The interest on recurring deposits is compounded quarterly. Banks use the following formula to calculate the interest at maturity on the deposits in recurring deposit account:
M = P*(1+R/N)^Nt
M = Maturity amount.
P = Principal amount or the instalment amount
R = Interest rate in decimal, convert interest rate into a decimal by dividing it by 100
t = Tenure
N= compounding frequency (since it is quarterly, it will be 4)
Various banks and third-party websites also offer an online RD calculator, allowing the depositor to determine the maturity amount they will receive upon maturity. The calculator is simple to use and provides accurate instant results. All you have to do is enter basic information such as the investment amount, tenure, and interest rate.
Banks in India also allow NRI customers to invest in recurring deposit schemes. NRI customers can invest in recurring accounts through NRE Deposit Accounts or NRO Deposit Accounts.
The money for regular deposits in the NRE Recurring Deposit account comes only from Non-Residential External (NRE) accounts.
Most Indian banks accept NRE deposits for a minimum of one year, and the regular deposit amount and interest rate vary from one bank to another.
One significant advantage of investing in this scheme is that the interest earned by NRIs from this deposit scheme is not taxable in India.
We have compiled a list of the most prominent benefits of a recurring deposit account:
Below listed are the primary features of a recurring deposit account:
Deposits can be made on a regular basis by using Standing Instructions, giving permission to the bank by the customer to credit the recurring deposit account every month from his or her Savings or Current Account.
Both FD or fixed deposit and RD offer guaranteed returns. But what are the differences between the two accounts? Kindly refer to the table below to get better clarity.
|Fixed Deposit||Recurring Deposit|
|Minimum tenure of 7 days||Minimum tenure of 6 months (most bank RDs)|
|Only lump sum deposits allowed for a fixed period of time||You can deposit on a monthly basis|
|Premature withdrawal could call for penalty charges||No penalty charges for premature withdrawal|
|Tax benefits of up to Rs.1.5 lakh under Section 80C of the Income Tax Act||RD is not eligible for tax deductions|
Before investing money to open a recurring deposit account, it is crucial to consider the following factors:
As a fixed income instrument, recurring deposit accounts are unaffected by fluctuating market conditions. They may therefore be considered as one of the safest ways to invest and save money to meet financial goals or for emergencies.
This simple investment account allows the account holder to flexibly save any predetermined amount as a monthly or weekly instalment on predetermined dates for a predetermined tenure. The interest rate is fixed and compounded on a quarterly basis. At the end of the maturity period, the investor gets the lump sum – principal amount and interest it has earned.
Ans. When you open an RD account, the interest rate is fixed and is not affected by any fluctuations in interest rates during the term of the account. Any changes will only be effective if you open a new RD account.
Ans. The maturity amount is determined by the customer’s instalment, tenure, and account type. The maturity value of an RD is rounded off to the nearest rupee and paid after one month deposit of the last instalment or the expiration of the period for which the deposit was accepted, whichever comes first.
Ans. To open an RD account, you must debit a current or savings account. The account chosen for debiting must be a valid transactional account accessible via Internet Banking and must not be a stopped, dormant or locked account.
Ans: The return on FD is higher than that on RD when compared. Due to the fact that RDs require monthly deposits, interest is also earned accordingly. FDs are usually deposited once and earn a higher interest rate because they are lump sums.
Ans: The most common types of recurring deposits include regular recurring deposits, recurring deposits for minors, recurring deposits for senior citizens, tax-saving recurring deposits, and NRI/NRE recurring deposits.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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