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Recurring Deposit Meaning

Recurring Deposit Meaning

Recurring Deposit has earned the trust of people of all ages. So, what exactly is a Recurring Deposit account, and why are they so popular? Our guide explains what recurring deposit entails.

Customers can choose from a variety of investment possibilities when it comes to saving money, based on what they desire. The vast majority of consumers gravitate toward financial instruments that are both safe and can help create a consistent source of income. Then there are those who want to save money by depositing a fixed sum into an account on a regular basis in order to accumulate a greater corpus. Yes, fixed and recurring deposits remain the favoured investment vehicle for the majority of conventional investors. In this essay, we will attempt to define a recurring deposit. Continue reading this blog to discover out.

What exactly is a reoccurring deposit account?

A recurring deposit (RD) is a sort of term deposit in which consumers can invest in monthly instalments. Instead of locking your whole investment amount in a deposit all at once, as a Recurring Deposit holder, you can invest a specific sum at regular intervals for a fixed tenure. The interest rates on your recurring deposits are nearly identical to those offered by banks on fixed deposits (FDs). As a result, even tiny contributions might yield a lot of money. An RD is a fantastic investment vehicle that can assist you in developing the discipline of saving money on a regular basis.

How does a Recurring Deposit account work?

A regular fixed deposit entails putting money away that can be withdrawn after a certain period of time. Meanwhile, you are unable to change or supplement the amount of money.

The recurring deposit mechanism is similar, with one significant distinction. Rather than investing a large payment, you should deposit a set amount into your RD account each month, as established when you opened your account. This could be a small payment that will not deplete your savings account. And when the money matures, you’ll get a significant sum that is greater than your principal + interest.

How to open a Recurring Deposit account?

  • You can open an RD account by visiting any bank or post office and filling out a form.
  • Following that, you must produce other formal documents such as a PAN card and proof of address, as well as pay the first month’s money to the bank/post office.
  • A Recurring Deposit account can be opened for as little as six months or in three-month increments, with the longest period being ten years.
  • A Recurring Deposit’s interest rates are comparable to those of fixed deposits.
  • If you are a senior citizen, you will be offered a 0.5 % extra rate of interest, similar to India Post, and select banks will also provide you with a 5-day buffer time.

Is it possible to cancel the deposit before the deadline?

It is possible to cancel a recurring deposit. That is something that neither the bank nor the post office can refuse. However, because you are not allowing the recurring deposit to run its course, the bank/post office has the authority to keep/cancel the unpaid interest. You will receive your original investment amount, but no interest.

Recurring Deposit Account Advantage

  • The monthly investment is fixed.
  • Duration is fixed.
  • Fixed interest rate

Recurring Deposit Account Disadvantage

  • You cannot withdraw the funds whenever you want.
  • Once you’ve agreed on a monthly investment amount, you can’t change it.
  • It has a lower interest rate than others.

Features of Recurring Deposit

  • By making a minimum monthly investment of Rs. 100, open an RD account.
  • For RD accounts, the minimum deposit term is six months and the maximum deposit term is ten years.
  • A higher interest rate than a savings account is offered by RD accounts.
  • Banks typically compound interest once every three months.
  • Depending on the bank’s discretion, RD accounts have a lock-in duration of 30 days to 3 months. There will be no interest paid on withdrawals made during the lock-in period.
  • Any number of RD accounts may be opened by a single account holder.
  • Some banks, including the Post Office, permit advance deposits.
  • No part withdrawals are permitted.
  • Premature withdrawals are permitted but come with a cost.
  • Instead of paying all at once, as with fixed deposits, make monthly instalments.
  • Create standing orders to have the instalments automatically taken out of your savings account without your intervention.
  • An additional 0.5% interest rate may be offered to seniors.
  • Minors may open RD accounts, but only with the consent of their parents or guardians.
  • On the RD balance, there are overdraft and loan options.

Benefits/Liabilities from Taxes for RD

If the interest received on recurring deposits across branches exceeds Rs. 40,000 in a fiscal year, tax may be withheld at the source. For older citizens, the cap is Rs. 50,000 every fiscal year.

If your total yearly income falls within the basic exemption threshold, you can ask the bank to withhold your taxes at source by submitting Form 15G/15H.

Can I make monthly deposits of various amounts into my RD account?

No. You cannot make monthly deposits of varied sums into a standard RD account. However, some banks provide flexible RD programmes that let you deposit different amounts and numerous times every month depending on your funds.

Does the Post Office RD function the same as any other RD provided by a bank?

Although the RD accounts provided by banks and the Post Office have the same fundamental functioning, there may be variations in specific norms and rules. For instance, the IDFC Bank offers RD accounts with a minimum deposit of Rs. 1,000, while the Post Office only requires Rs. 100.

Top 10 Banks and Their RD Interest Rates

Bank NameRegular RD Interest Rates (% p.a.)*Senior Citizen RD Interest Rates (% p.a.)*
Post Office5.80 %5.80 %
Axis Bank6.05-6.50 %6.55-7.00 %
IDBI Bank5.75-5.90 %6.25-6.40 %
Bank of Baroda4.50-5.70 %5.00-6.20 %
HDFC Bank4.50-5.75 %5.00-6.25 %
ICICI Bank4.75-6.00 %5.25-6.50 %
UCO Bank4.95-5.00 %5.25-5.50 %
Kotak Bank5.00-5.50 %5.50-6.00 %
Punjab National Bank5.50-5.80 %6.00-6.30 %

Interest rates could fluctuate over time.


Financial Reminder from Behindyourgoals

Thank you for your time reading this! I hope you properly read our Article and gain knowledge about Recurring deposits (RD). We have more articles related to finance & Banking.

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