For most investors looking for a very low-risk investment with guaranteed returns, recurring deposit accounts are the way to go. Recurring Deposit or RD involves making regular deposits for a fixed tenure to earn handsome returns. Even though they have been around for a while, very few know about this flexible investment tool.
But what is meaning of recurring deposit?
What is a Recurring Deposit?
A recurring depositis a unique term-deposit scheme offered by various financial institutions in India. It allows investors to put a certain sum of money in the account every month and earn decent returns over a fixed tenure.
You can choose to invest the minimum amount to your recurring deposit, allowing you to earn attractive returns without burdening your pocket each month. Moreover, the RD can be funded periodically by giving standing instructions to the bank to debit funds monthly from your savings or current account.
Compared to a fixed deposit, where you have to invest a lump sum amount, a recurring deposit is much more flexible as it lets you build a sufficient corpus through small monthly investments. Most financial institutions offer a convenient tenure ranging from 6 months to 10 years, where the interest earnings are compounded quarterly.
Features of recurring deposit account
1. Minimum investment
Recurring deposits are an excellent investment option for all your short-term and long-term financial goals as they don’t require you to invest sizeable funds. You can open a recurring account with an amount as low as Rs. 500, however it varies for various financial institutions
2. Flexible tenure
RD offers you the utmost convenience in choosing your investment term. You can invest your funds for a period ranging from 6 months to 10 years, depending on your financial goals.
3. Lock-in period
A recurring deposit account comes with a lock-in period of 30 to 90 days, which can vary depending on the financial institution.
4. High interest rate
If you’re looking to fetch handsome returns on investments, you cannot go wrong with recurring deposits. Since recurring deposits attract higher interest rates than a savings account, they are ideal for savings and wealth creation.
5. Assured returns
When you invest in a recurring deposit, you’re assured of returns on maturity. It is a fixed-investment plan, and the interest rates don’t alter during the deposit tenure. Financial institutions compound the rate of interest on a quarterly basis, and you can withdraw the entire amount as a lump sum on maturity.
6. Loan Facility
Many financial institutions also offer a loan facility on recurring deposits, making it an appealing investment option. Here, the deposit is used as collateral, and you can secure up to 80 or 90% (depending upon the bank) of the deposit amount as a loan.
Factors to consider before opening a recurring deposit
Now that you’re aware of what is recurring deposit here are a few factors you need to consider before moving forward.
Interest rates and tenure
Look for a financial institution that offers you the highest interest rates along with a flexible deposit tenure. This is because the rate of return can vary depending upon the chosen deposit tenure. Typically, mid-term deposits attract competitive interest rates over a longer term.
Further, choosing a suitable deposit tenure is also important because once you open an RD account, you are not allowed to change the tenure.
Premature withdrawal facility
Most banks offer a premature withdrawal facility on your recurring deposit account. You will receive interest on your deposit based on the tenure completed. Moreover, an early withdrawal also attracts a penalty from the bank.
So it is crucial to invest in an RD scheme that offers a high interest rate and a low penalty for premature withdrawal.
Simply put, recurring depositrefers to a unique term deposit that allows you to grow funds by investing a fixed amount every month. The best part? It comes with flexible eligibility criteria, varying from one bank to another.
- Any individual with a savings account
- Any minor above the age of 10 years
- Minor below or equal to 10 years of age, under a legal guardian
- Any government organization
- Any sole proprietorship firm, company, or commercial business
Recurring Deposits attract no tax exemptions. Income tax has to be paid on the Interest amount received from Recurring Deposits. The tax has to be paid at the rate of the tax slab of the RD holder. However, taxpayers whose annual income is below the tax limit can submit form 15G/15H requesting tax exemption.
To sum up
So, what is a RD account? An RD is an excellent investment plan where you can gradually grow your funds for your short-term and long-term financial goals. And begin your investment journey with Tata Capital’s Moneyfy app. Through our app, you can check out a range of investment avenues based on your goals, including a recurring deposit.
What’s more, use our easy-to-use RD calculator to determine your monthly deposits and plan your investment accordingly. So, download our app and take a step towards smart investments today!