What Is a Recurring Deposit Account?

 

A recurring deposit is amongst the most popular low-risk deposit schemes in India. It allows the account holder to save a small amount every month and earn lucrative interest rates on such deposits. It is used by people to fulfil numerous types of financial goals and objectives by leveraging the quarterly compounding benefits.

Here in this article, we will discuss what is a recurring deposit and its features, benefits, application procedure and more.

What Is a Recurring Deposit Account?

A recurring deposit is among the most popular bank deposits in India. It allows the account holder to put a small sum of money in their account every month building a large corpus over time. Banks offer flexibility in the investment amount and tenure. The minimum amount can vary from bank to bank and the tenure of a recurring deposit can typically range from 6 months to 10 years.

Recurring deposit interest rate remains fixed throughout the tenure and you can withdraw the entire amount on maturity. However, you can also choose the interest pay-out option which allows you to enjoy interest income at certain intervals or upon maturity. 

How Does a Recurring Deposit (RD) Account Work?

In a recurring deposit, the account holder is required to pay monthly instalments instead of making lump sum investments. In short, it allows flexibility to the account holder to make small monthly savings for a chosen tenure. 

The tenure of a recurring deposit typically ranges from 6 months to 10 years and it allows the account holder to enjoy the benefits of quarterly compounding.

Upon maturity, you can withdraw the entire maturity value i.e. both the principal and the interest component to your savings account.

What Are the Features of Recurring Deposit (RD)?

Here are some of the features of recurring deposits in India:

• Assured Returns: 

A recurring deposit investment offers a guaranteed return on investment upon maturity as their rate of interest payout remains fixed throughout the deposit tenure.

• Higher Interest Rate: 

The interest rate offered by a recurring deposit is higher than that of regular savings bank accounts.

• Flexible Investment Amount: 

Investors have the flexibility to choose the amount of investment at their convenience. While the minimum amount of investment can be as low as Rs. 100 (though it varies from bank to bank), there is no maximum limit.

• Flexible Tenure: 

The tenure of a recurring deposit is also quite flexible; typically it ranges from 6 months to 10 years.

• Overdraft Facility: 

These accounts may allow overdraft facilities against the deposits. In case of defaults, the amount due will be adjusted with your recurring deposit balance.

• Lock-In-Period: 

An RD account may come with a lock-in time which varies from bank to bank. It can be as low as 30 days and go up to 3 months; any withdrawal you make during this time will not qualify for any interest.

What Are the Benefits of Having an RD Account?

Here are some of the benefits of having a recurring deposit account:

• No penalty is applied in case of a missed RD instalment.

• Investing in an RD encourages the practice of saving money.

• The documentation process is very simple. Existing account holders are not required to submit any additional documents.

• Enjoy a higher interest rate compared to a regular savings bank account.

• Start a recurring deposit account with as low as Rs. 100 (this varies from bank to bank).

• Easy and simple account opening, especially for existing bank savings account holders.

• These are excellent saving options to achieve short-term financial objectives.

What Are the Recurring Deposit Interest Rates?

Listed below are the recurring deposit interest rates for 10 prominent Banks in India:

Banks	Regular RD Rates (% p.a.)*	Senior Citizen RD Rates (% p.a.)*
DBS Bank	2.50 to 5.50	2.50 to 5.50
Citibank	3.00 to 3.25	3.50 to 3.75
Indian Bank	3.95 to 5.25	4.45 to 5.75
Bank of Baroda	4.50 to 5.70	5.00 to 6.20
HDFC Bank	4.50 to 5.75	5.00 to 6.25
ICICI Bank	4.75 to 6.00	5.25 to 6.50
UCO Bank	4.95 to 5.00	5.25 to 5.50
Kotak Bank	5.00 to 5.50	5.50 to 6.00
Bandhan Bank	5.40 to 6.75	6.15 to 7.50
Union Bank of India	5.50 to 5.90	5.50 to 5.90

What Factors Should You Consider Before Opening an RD Account?

The following are some essential factors to keep in mind before opening a recurring deposit account:

• Rate of Interest: 

The interest rate varies from bank to bank; hence, it is always recommended to opt for the most lucrative rate to maximise returns.

• Amount of Investment: 

Determining the right sum of money to invest is a crucial aspect to consider while investing in an RD account. Choose the sum in such a way that you do not feel burdened upon making such monthly RD payments.

• Investment Tenure:

The investment tenure is also an important factor to consider while opening an RD. You can set this based on your financial goals or objectives and at your convenience.

• Tax on Interest income:

Interest income on RD is fully taxable, it is taxed as per your applicable tax slab. If your interest income is less than Rs. 40,000 (Rs. 50,000 for senior citizens), no TDS will be applicable. However, if it exceeds the said threshold TDS will be deducted. But in case your income is below the basic exemption limit, you can submit Form 15G or 15H to prevent a TDS deduction.

What Are the Steps to Open a Recurring Deposit Account Online & Offline?

You can invest in a recurring deposit via online or offline mode by physically visiting the bank branch:

• Online

Here are the steps guiding you to open an RD account online:

Step 1: To start with, firstly login to your bank’s net banking portal using credentials.

Step 2: Then from the account section, click on Recurring Deposit and then choose the option ‘Open Recurring Deposit’.

Step 3: Now an interface will open up on your screen, where you will have to enter the RD amount and tenure. Then, link the savings account from where your funds will get debited.

Step 4: Confirm the above-entered details and add a nominee to your RD.

Step 5: Upon successful submission, you will receive an acknowledgement receipt in your registered email.

• Offline

Here are the steps guiding you to open an RD account via the offline mode:

Step 1: Simply visit a bank branch located nearby where you already have an account. 

Step 2: Obtain an RD account opening form and fill it up. You will have to enter some of the basic details such as investment amount, tenure, name of account holder, contact details, etc.

Step 3: Submit the form along with copies of the required documents and pay the first RD instalment via cash or cheque.

Step 4: The banker will then verify your application form along with the required documents.

Step 5: Post verification, the banker will then initiate the process and provide you with an acknowledgement receipt.

Who Can Invest in an RD Account?

Here are the entities that are eligible to open a recurring deposit account:

• Individual account holders

• Minors of age 10 years and above

• Minors of age 10 years and below under the care of a natural or legal guardian

• Government entities

• Entities such as corporations, proprietorships, commercial organisations or companies

What Are the Documents Required to Open an RD Account?

Listed below are some of the documents you need to open a recurring deposit account:

• Recurring deposit account opening form (duly filled)

• Recent passport-size photographs

• Proof of identity (passport, Aadhaar, driving licence, voter ID)

• Proof of address (Aadhaar, voter ID, driving licence, utility bills, etc.)

• PAN card

Hopefully, by now you have some clarity on what a recurring deposit is, how it works, the benefits of investing in an RD, how to apply for an RD online, etc. However, it is always recommended to keep several factors in mind while opening an RD. First, check and compare the interest rates provided by the bank. Then, assess your time horizon and set an investment objective as your funds will be locked over the tenure. 

FAQs about What is Recurring Deposit?

• What is RD and how does it work?

A recurring deposit account is a type of deposit account where you can deposit a small fixed amount every month for the chosen tenure. The bank offers a fixed rate of interest on the deposit amount which is compounded on a quarterly basis.

• Which is better RD or FD?

Both FDs and RDs are similar investments. While FDs are ideal for lump sum deposits, RDs are better if you want to invest small amounts over a long time. 

• Is interest earned on recurring deposits taxable?

Yes, interests earned on RDs are fully taxable. If the amount of interest income exceeds Rs. 40,000 (Rs. 50,000 for senior citizens), a 10% TDS will be deducted at the source.

• What is the minimum tenure for Recurring deposits?

The minimum tenure of a recurring deposit varies from bank to bank but typically it can go as low as Rs. 100 per month.

• Who is eligible to open a Recurring Deposit (RD) account?

Individuals, minors, government entities, partnership firms, companies and proprietorships are eligible to open an RD account.

• Can I withdraw my Recurring Deposit before the term is over?

Yes, premature withdrawals are allowed in a recurring deposit, but it is subject to a penalty on the interest amount.

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