What is Recurring Deposit?

All Indian Banks offer recurring deposit accounts to their customers. Do you already have a recurring deposit account or want to know what it is before opening one? This article will guide investing pros and beginners through the meaning of RD, its features and benefits, and more.

Recurring Deposit Meaning

Recurring Deposit is commonly referred to as an RD and it is a term-deposit. You can invest a small fixed sum of money every month and earn interest on it. 

The term of the deposit is decided before you start investing. It is a very flexible and low-risk way to save funds for life goals. Once the term is over, you can get the total amount of money as well as your interest as a lump sum. 

You can choose where you want to receive the amount. You can either get it in the same bank account or re-invest it in an FD. You can also nominate someone to receive the amount in the unfortunate event of your death.

Features of a Recurring Deposit Account

Now that you know ‘what is recurring deposit account’, let’s look at some of its salient features - 

• The amount that can be invested starts from as small as Rs.100 per month

• You can choose a tenure starting from 6 months to 10 years

• You get a higher rate of interest compared to when you just park your funds in your Savings Bank Account

• RDs debit money from your account automatically without you having to remember to pay each time

• In case of emergency, premature withdrawals are also allowed under certain conditions

Benefits of a Recurring Deposit Account

After learning what is a recurring deposit account and what its features are, let’s see what benefits make them so popular among people -

• You can get interest rates starting from 2.65% to 8.35% based on the tenure and amount you invest.

• Your money is not dappled in the market and you get the amount that you were promised. Thus it is risk-free.

• It can be conveniently used to fulfill long and short-term goals, like a dream vacation or some extra funds for your wedding!

• No need to make any lump sum investments to start a recurring deposit account.

• Banks offer loan facilities that can go up to 90% of the saved amount.

• Senior citizens get higher interest rates.

• Even minors, above the age of 10 can start a recurring deposit with help from a guardian and often get higher interest rates based on the bank’s terms and conditions. 

What is Recurring Deposit - Eligibility Criteria

The eligibility criteria for a recurring deposit are very inclusive as well -

• Anyone with a bank account can start a recurring deposit account

• Minors between the ages of 10 and 18 can also open accounts under the guidance of a guardian

• Corporations, firms, commercial enterprises, and private or government organizations can also start a recurring deposit account

Disadvantages of Recurring Deposits

Recurring deposits, like all other investment schemes, have some disadvantages - 

• You might not get any interest amount if you choose to withdraw or close an RD prematurely. 

• The installment amount is fixed and needs to be paid every month without fail

• The interest earned is lower than fixed deposits

• It is not a tax-saving investment tool and TDS is deductible

Conclusion

Recurring deposits are a great way to save money for life goals without much effort as any sum of money can be invested every month. They inculcate a discipline of saving up without the effort of arranging for a lump sum amount.

You can withdraw or stop an RD before you reach the end of your tenure if you face a financial emergency. You might have to pay a small penalty or might not earn interest, but your principal amount will not be lost.

You can easily open an RD account online or offline by submitting minimal documents at any major bank. If you are an existing customer of a bank, you might not even need to submit any documents.

The rates of interest for RDs vary depending on the bank you choose, the amount you invest, and the tenure you keep investing for.