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RD - Recurring Deposit

A recurring deposit, commonly known as RD is a fixed term deposit offered by Indian banks and financial institutions. It is an investment avenue that enables you to invest a fixed sum of money every month and earn a decent return on investment. RDs allow you to save regularly, providing you with flexibility of investment and ease of investing money. Compared to fixed deposits where you are required to invest a lump sum amount, RDs enable you to invest an amount as low as Rs.500/month to help you save money in a secured way.

Several top banks and financial companies in India enable you to save in RD for a term of 6 months - 10 years. The interest rate on investment done is dependent on the bank and may vary from bank to bank. The interest rate does not change once fixed and at the same rate principal amount and interest earned is offered to the investor on maturity. The RD payout is made on a lump sum basis as determined or estimated at the time of investment.

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Factors to consider before opening an RD account

On understanding what RD is and how it works, it is imperative that you consider the below factors before opening this type of fixed term deposit.

  1. Investment amount: You can invest as low as Rs.500 per month in a RD deposit. The returns that you get will depend on the amount you invest each month. Hence, having an understanding of how much to invest per month is important when considering opening an RD account.
  2. Tenure: Once you open an RD account, you cannot alter the tenure chosen. Hence, when considering to open this type of account, consider the tenure as you will have to keep on paying the specific amount each month your returns and rate of interest too would depend on the tenure.
  3. Interest rate: RD investment helps you get decent interest on investment. The rates vary from bank to bank and individual category too. Senior citizens usually get a higher interest rate. Hence, it is best to open the RD account with the bank that offers you the highest interest rate.
  4. Tax on interest rate: The interest earned on recurring deposits is taxable only on amount above Rs. 40,000. In case the interest earned is less than Rs. 40,000, tax will not be deducted.
  5. Withdrawals: Partial withdrawals are not allowed for RDs. However, premature withdrawals can be made, but it will attract penalties.

Recurring Deposit Account Features

Given below are key features of RD account

  1. Inculcates habit of regular shavings: With a recurring account, you become a disciplined investor as you are required to invest a fixed amount of money every month. This ensures you save enough for the future.
  2. Minimum investment: Recurring deposits require you to invest an amount as low as Rs. 500 per month. You can also invest Rs.10,000 or a higher amount depending on your income, risk capacity, age and other factors.
  3. Fixed income investment: Rds offer you guaranteed return on maturity. You can estimate the returns and the interest you can earn before even investing your money. The best thing is interest rates do not change during the deposit tenure.
  4. Time period: You can open an Rd account for a time period of 6 months-10 years, thus providing you with the flexibility of online payment.
  5. Lock in period: This type of deposit comes with a lock in period of 30 days-3 months or 6 months or more depending on the bank or the financial institution you choose to open the deposit with.
  6. Premature withdrawals: Premature withdrawals attract a penalty of a specific percentage.
  7. Loan facility: Recurring deposits after a certain period of time enable you to avail loan facility. The loan payments are adjusted against funds available in the RD account.

Benefits of Investing in Recurring Deposits

Wonder whether you should invest in RD or not? Here are a few benefits of doing so.

  1. Safe Investment: Over the years, recurring deposit has become a safe investment option since it carries no risk at all. By investing in an RD account, you can ensure that your savings are safe and additionally earn great returns on investment too. You do not stand to lose out on funds since the interest rates and the maturity amount you get are predefined.
  2. Earn on your savings : A RD account helps you grow your wealth by offering you interest on your savings. The longer the tenure, the higher will be the interest you earn and vice versa.
  3. Lump sum payout : The maturity amount is paid out on a lump sum basis at the end of the tenure. This amount includes both your principal amount as well as the tenure.
  4. Access online: RD accounts can be opened and operated online which makes it easy for you to track your investment. You can choose the tenure, deposit amount of your choice based on your income and future financial planning.
  5. High rate of interest for senior citizens: RD accounts offer high interest rate to senior citizens, enabling them to earn good returns and provide them a sense of relief for spending their retirement years.

Who can invest in an RD account?

The basic eligibility criteria for opening an RD account is the same. However, the depositor has to have a savings account with the bank to open the deposit account.

  1. Individual savings account holder
  2. Minor above the age of 10
  3. Government organization
  4. Corporate, company, proprietorship or commercial organization

Documents required to open RD account

Below documents are required to open an RD account

  • RD applicant form
  • Passport size photographs
  • Identity proof
  • Address proof
  • KYC documents

How to Close RD Account

In times of a financial emergency, you can close your recurring deposit account online or either offline by visiting the bank.

Steps to close RD account online

Usually, the below steps may vary from bank to bank. But few common steps to follow are:

  • Login to your net banking or banking app using your registered mobile number of user ID
  • Click on save tab and deposits
  • Then click on break or dissolve the deposit
  • You will then receive OTP to proceed with the request of RD foreclosure
  • The accumulated amount will then be credited to your savings account after deduction of the penalty charged by the bank

Steps to close RD account offline

  • Visit the bank and get the RD foreclosure form
  • Fill the form
  • Submit your KYC documents
  • An RD deposit certificate will be issued
  • The deposit can be then withdrawn. You can either opt to get cash or get the amount credited to your bank account

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FAQs

  • Who can open an RD account?

    Anyone having an account with the bank can open an RD account. The account can be opened on joint basis or couples can be opened in the name

  • Is RD better than FD?

    The interest rate offered on fixed deposits is much higher than the one offered on RD. However, in recurring deposits, you can do monthly investment, but in FD, you have to invest a lump sum amount at one go. 

  • Can I withdraw RD anytime?

    Yes, you can choose to withdraw amount accumulated in your recurring deposit account at any time.

  • Can I open RD for 3 months?

    The minimum tenure for which you can open RD is for 6 months

  • Do RD accounts come with a lock-in?

    Yes, RD accounts do come with a lock-in of 30 days- 3 months during which you cannot withdraw the deposited amount

  • Can I foreclose my RD account?

    Yes, you can stop making RD payments before the end of maturity and after the end of the lock in period. 

  • What is the minimum rate of interest offered in an RD account?

    RD account offers you a minimum of 3.5%-6% p.a.

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