What is Recurring Deposit (RD)? Features, Advantages & Disadvantages

Recurring Deposit – A recurring deposit is a term deposit with an interest component offered by banks. For RD there are tenure options which an individual can choose and deposit the amount monthly. Upon maturity, depending on the bank the individual will receive lump sum amount with interest. A decent individual who can invest monthly and regularly is eligible to open an RD account.

Features

  • Almost all banks in India offer the Recurring Deposit scheme ranging from 6 months to 10 years providing an opportunity to choose as per the individual needs.
  • The interest rates vary from bank to bank and also depends on the tenure.
  • Below are interest rates provided by following banks for the respective tenure.

Recurring Deposit

Name of the Bank Tenure Regular RD interest rate
HDFC Bank 6 months to 10 years 6.25% – 7.25%
SBI 1 year to 10 years 6.7% – 6.85%
ICICI Bank 6 months to 10 Years 6.00%-7.25%
Canara Bank 6 months to 10 Years 6.35% – 7.00%
  • The RD interest rates for senior citizens are as follows:
Name of the Bank  Tenure Regular RD interest rate
HDFC Bank 6 months to 10 years 6.5%-7.5%
SBI 1 year to 10 years 7.20% – 7.35%
ICICI Bank 6 months to 10 Years 6.5% – 7.75%
Canara Bank 6 months to 10 Years 6.85% – 7.5%
  • Recurring deposit helps common man to make a habit of saving regularly.
  • The minimum amount to start RD varies from bank to bank and can be as low as RS 10.
  • The rate of interest once fixed will be applicable for the entire tenure. There will not be any change in the interest rate once the RD account is opened.
  • Recurring Deposit provides the flexibility of taking loan on the saving. Most banks provide a loan up to 80%-90% of the saving to the account holder.
  • Most banks now provide the feature to automatically deduct the RD amount from savings account. This feature will help the individual by avoiding missing payments.

Eligibility Criteria

  • Any individual with minimum saving per the bank guidelines.
  • A minor who is above 10 years of age can open RD account provided she/he produces proof of the name.
  • A minor who is below 10 years of age can open RD account provided they have a legal guardian or natural guardian to support the process of opening the account.
  • Any company, organization or corporate or proprietorship can open RD account.
  • Any government organization also can open the RD account.
  • Documents required are application form, identity proof, residence proof, passport size photo and any other documents requested by the bank.

Advantages

  • This scheme allows a person to save on a regular basis and makes them commit to a tenure there by helping them from overspending their money.
  • The interest earned by recurring deposit is taxable however can be used to get exemption if the interest amount does not exceed a limit defined by government per the below guidelines. The individual can submit 15G form to claim the TDS deduction.
    • Up to Annual income 5 lakh rupees the interest should not exceed 10,000 Rupees on the RD account. If the amount exceeds then a person is eligible to pay 10% tax if the annual income is between 2.5 lakh – 5 lakh rupees.
    • For above 5 lakh the tax is 20.6% on the interest earned given the individual earns more than 10,000 Rupees as interest.
  • You will receive guaranteed returns unlike mutual funds or equity. Almost zero risk investment when compared to bonds and stock options.
  • You can withdraw anytime given some guidelines by the government unlike stocks etc.
  • Flexible recurring deposits allow you to increase the amount of deposit at any interval time. Please consult the respective bank if they provide this feature.
  • On maturity you will receive lump sum amount with interest that will fulfil your need or purpose and give you a huge satisfaction.
  • The interest rates are high for senior citizens and is advantageous to those who have income through pension.
  • The RD scheme is most advantageous for long-term tenure.

Disadvantages

  • Once committed to the investment you have to go through the entire tenure if you want to earn the total interest.
  • There will be premature withdrawal penalties if an individual decides to withdraw the amount. The disadvantage of premature withdrawal is you will waste time as the interest will not be paid in full.
  • Unlike Fixed Deposit interest, you have to wait all along the tenure to receive the amount and you have to periodically deposit the money in the bank account.
  • If the interest earned is more than RS 10,000 it is taxable.
  • The RD scheme is not a great investment if you are looking for huge returns.
  • The account holder will receive no interest if he withdraws before the premature date defined by the government. For example, if the tenure is for 6 months, the banks have a lock-in period of 3 months. If the individual withdraws before 3 month period he/she will earn zero interest.

Recurring Deposit is a great investment for a regular saving. I hope the above features and instructions will help you invest in Recurring Deposit for those you care about.

It is always advised to do thorough research on the banks, terms, tenure and the interest rates before opening a RD account.


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