A recurring deposit account or an RD enables you to enjoy the ultimate level of flexibility while having a grasp on your financial discipline. But how? You can deposit a certain sum of money every month and get a lump sum at the end of the tenure.
Unlike a regular savings account, in an RD, you are required to save a specific sum every month at a fixed time for a particular period.
Let’s find out everything about types of recurring deposit accounts.
Different types of recurring deposit accounts exist in multiple banks, post offices, and NBFCs. Here, you can start recurring deposits for distinct financial goals.
These types of recurring deposit accounts meet your specific needs. Some are meant to fulfill the requirements of a certain demographic.
The most common types of recurring deposit accounts that you can find in almost all Indian banks, NBFCs, etc. are:
Regular Recurring Deposit Accounts
RD Account for Minors
RD Account for Senior Citizens
Tax Saving Recurring Deposit Accounts
NRE/NRO Recurring Deposit Accounts
Now we will explore all these types of recurring deposit accounts in detail.
Most Indian banks and NBFCs offer a great way to save money, the RD scheme.
A regular RD account is easy to start; all you need is to be at least 18 years old and pick a deposit amount and duration, usually varying from 6 months to 10 years.
The interest rate can be simple or compound, depending on the bank. Generally, it stays fixed throughout the tenure, giving you the benefit of predicting your returns after maturity. Remember, you can’t add more money during the term, but you can take out a lump sum at the end.
Make sure to check with your bank about the minimum deposit amount and available terms.
If you’re under 18, you can still have an RD account with the help of your parents or guardians. This is a fantastic way to start saving early and developing a habit of financial discipline.
Parents can open these types of recurring deposits on behalf of their children. They can use these to invest in their child’s future, especially for education and other expenses.
Most banks also offer higher interest rates for minors.
There are special Recurring Deposits (RDs) for senior citizens as well.
Many banks offer higher interest rates on these types of recurring deposit accounts, usually an extra 0.50% to 0.75%.
This can be a great option to help you invest your money safely and earn more interest. It provides much-needed financial security to people over 60 and maximizes their returns.
But there’s more! If you’re over 80, you can even avail of a Super-Senior RD account!
Did you know that the interest you earn on your recurring deposit account is taxed? Usually, if the interest earned on the FD is more than Rs.10,000, it is taxable.
However, some banks and financial institutions offer tax-saving RDs. According to Section 80C of the Income Tax Act, 1961, these tax-saving RD accounts help you save tax.
Please note that tax-saving RDs usually have a lower interest rate compared to others and also come with a lock-in period.
Even Non-Resident Indians (NRIs) can open RD accounts. These RDs let you earn good interest rates and save money monthly on income made both inside and outside India.
It’s a smart way to grow your savings with monthly deposits even if you’re not in the country. Plus, you won’t have to worry about currency exchange and transfer charges when doing financial transactions in India.
There are two types of RD accounts for NRIs -
A Non-Resident External (NRE) account lets an NRI make monthly deposits in the currency of his choice in an Indian bank. The foreign currency is converted to Indian Rupees at the time of deposit. For this, the NRI must earn an income outside India.
The interest earned on this account is free from Indian tax laws, and the account can also be moved to the NRI’s present country.
If an NRI wants to manage their income earned in India from rents, dividends, equity, or pension from abroad, they can open a Non-Resident Ordinary (NRO) account. An NRO account is in the form of a savings or current account.
The deposit is made in Indian Rupees. Even forex can be deposited in an NRO account, but it gets converted into Indian Rupees at the time of deposit. The NRI can deposit and manage Rupee funds in an NRO account, and the interest earned on these accounts is taxable at 30% plus CESS.
However, it is often repatriable based on certain featured requisites.
A Flexi RD is a Recurring Deposit scheme that allows the depositor to invest variable sums instead of fixed monthly ones. Usually, the depositor deposits a fixed amount and can deposit extra funds based on their financial situation. This allows them to constantly earn the fixed interest based on the core amount plus enjoy excess interest for the additional deposits.
Recurring Deposits are great as you don’t need to deposit a lump sum amount and yet you can attain your financial objectives.
However, they also offer you other upsides:
Financial Discipline: Depositing a specific sum monthly at a fixed date for a period without fail gives you reins over your financial discipline and creates a habit.
Cascading Interest: While you keep putting a particular sum in your RD accounts, it earns a compound interest both on the principal amount as well as the accumulated interest.
No Penalty: If you miss an RD payment for a month for some reason, you don’t incur any financial penalties. The terms of returns don’t dissolve either.
Guaranteed Returns: With different types of recurring deposit accounts, you enjoy a better interest rate compared to regular savings accounts. RDs offer you fixed interest rates, ensuring guaranteed returns.
Unmatched Flexibility: You can choose an RD account based on your budget and financial goals.
Exceptional Ease: From opening an RD account for as low as Rs.10 per month to a straightforward account opening procedure, it’s probably the easiest. Sometimes, existing customers don’t need any documentation for an RD account opening. Different types of recurring deposit accounts can also be opened online.
Loan Facility: You can even grab a loan facility where the loan amount can be up to 90% of your RD account savings.
Different types of recurring deposits are suited for different demographics and their unique needs. From regular RDs to those tailored for minors, senior citizens, NRIs, and others for tax-saving purposes, these offer unique benefits each.
All of them provide safe and efficient ways to save and grow your money. So, only choose the one that aligns with your financial goals.
In India, most banks and NBFCs offer the following types of RD accounts - Regular Recurring Deposit Accounts, RD Account for Minors, RD Account for Senior Citizens, Tax Saving Recurring Deposit Accounts, and NRE/NRO Recurring Deposit Accounts for NRIs.
Based on the latest data, Deutsche Bank offers the maximum rate of interest for a regular RD account for any Indian citizen. It offers up to 8% p.a. interest rate for its RD account.
Most banks offer up to 7% interest rate on recurring deposits. SBI, Indian Bank, IOB, UCO Bank, Axis Bank, and HDFC Bank are some major banks where you can expect an interest of up to 7%.
No. For a regular RD account, you can deposit a fixed amount every month. However, certain banks provide Flexi RD schemes by which you can make variable deposits into your RD account.
Yes. It is possible to get your interest monthly, quarterly, half-yearly, and annually under the cumulative recurring deposit system.
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