Recurring Deposits
What is Recurring Deposit?
Recurring Deposit (RD) is a popular investment option offered by banks in India. It is a type of term deposit where individuals can deposit a fixed amount at regular intervals over a predetermined period. RDs provide a systematic way to save money while earning interest on the deposited amount.
Why Recurring Deposit?
Recurring Deposits are ideal for individuals who want to save money over time and earn fixed returns. They encourage disciplined savings by allowing individuals to contribute a fixed amount each month. RDs offer a safe and reliable investment avenue with guaranteed returns, making them a popular choice among risk-averse inves Recurring Deposits are ideal for individuals who want to save money over time and earn fixed returns. They encourage disciplined savings by allowing individuals to contribute a fixed amount each month. RDs offer a safe and reliable investment avenue with guaranteed returns, making them a popular choice among risk-averse investors.
Who can open a Recurring Deposit?
Recurring Deposits can be opened by Indian residents, including individuals, joint individuals, and minors (with guardianship). Non-resident Indians (NRIs) and Hindu Undivided Families (HUFs) are typically not eligible to open RD accounts. Banks may have specific eligibility criteria, so it is advisable to check with the respective bank before opening an RD account.
Benefits of Recurring Deposit:
- Regular Savings: RDs promote regular savings habits by allowing individuals to deposit a fixed amount each month. This helps inculcate financial discipline and achieve savings goals over time.
- Fixed Returns: RDs offer fixed interest rates, which remain constant throughout the deposit tenure. This ensures predictable returns on the investment, allowing individuals to plan their finances accordingly.
- Flexibility: Recurring Deposits offer flexibility in terms of deposit amount and tenure. Individuals can choose the monthly deposit amount based on their financial capabilities, and the tenure can range from a few months to several years.
- Low Risk: RDs are considered low-risk investments as they are offered by banks, which are regulated by the Reserve Bank of India (RBI). The principal amount is protected, and the interest earned is also assured.
Rate of Returns in Recurring Deposit:
The interest rates offered on Recurring Deposits vary across banks and are subject to change periodically. Currently, the interest rates for RDs in India range from approximately 5% to 7% per annum. It is advisable to check with the bank where you intend to open an RD account for the prevailing interest rates.
Where can one open a Recurring Deposit?
Recurring Deposits can be opened at any commercial bank, cooperative bank, or post office offering this service. Most banks in India provide the facility to open RD accounts, making it easily accessible for individuals.
Documents required to open a Recurring Deposit:
The documents required to open an RD account may vary from bank to bank. However, the common documents usually requested include:
- Identity Proof: PAN card, Aadhaar card, passport, voter ID, or driver's license.
- Address Proof: Aadhaar card, passport, utility bills, bank statement, or rental agreement.
- Passport-sized photographs.
- Filled RD account opening form.
Points to consider before opening a Recurring Deposit:
- Interest Rates: Compare the interest rates offered by different banks before finalizing an RD. Higher interest rates can significantly impact your returns over the tenure of the deposit.
- Penalty for Default: Missing monthly installments may attract penalties or a reduced interest rate. Ensure that you can commit to the monthly deposit amount for the chosen tenure to avoid any financial implications.
- Premature Withdrawal: RDs generally have a lock-in period, and premature withdrawals may incur penalties or lower interest rates. Understand the terms and conditions related to premature withdrawals before opening the RD account.
- Tax Implications: The interest earned on RDs is taxable as per the individual's income tax slab. Consider the tax liability on the interest income while calculating the overall returns from the RD.