Recurring Deposit Guide
5 min read | 5 months ago
Have you been considering setting up an RD account or investing in an RD scheme? You are on the right track, considering the benefits of these investment options which are safer than many other alternatives. Here is a guide that will give you a better idea about recurring deposits.
What is a Recurring Deposit?
A recurring deposit or RD scheme is a special term deposit that is provided by banks to their customers. Here, you can create an RD account and deposit a fixed sum of money each month into the same. This will help you earn interest at an attractive rate on these deposits through compounding. You can thus build up your savings with regular monthly deposits over a certain period of time.
What Are the Key Features of Recurring Deposits?
There are several key features and advantages of RD schemes, including the following:
- Flexible and convenient durations - You can choose to invest in a recurring deposit for any preferred tenure between 6-120 months for achieving your savings targets.
- Flexible investments - You can start investing in RD schemes with amounts that are as low as Rs. 1,000 every month.
- Convenient payment choices - You can choose to pay conveniently from your savings account for maximum convenience. Your chosen amount will be deposited into your RD account swiftly from your savings account each month as per your wishes
- Zero-risk investment - There are no market-linked risks for recurring deposits. You can safely invest in them to earn assured returns.
- No interest rate fluctuations - You can earn an assured rate of interest which does not change, once it is fixed while setting up your recurring deposit.
How Do Recurring Deposits Work?
You can easily open your recurring deposit (RD) in case there is proper KYC compliance for your current or savings account. You may open this account by visiting the nearest branch of your bank or even online. The account may either be of a single/joint account holder. It does not take a lot of time to open recurring deposit accounts. ou will only have to authorize your bank to debit a fixed amount automatically from your chosen account as per a pre-fixed or regular duration/schedule. The interest on the RD account will be usually compounded on a quarterly basis, while the account holder will get the combination of the principal and interest at the time of maturity. Hence, you can keep depositing fixed amounts into your account as per your convenience as per your financial plans.
Various Kinds of Recurring Deposits
There are numerous kinds of recurring deposits that are offered by banks and financial institutions these days. Some of them include the following:
- Regular RDs - Only Permanent Indian residents or Indian citizens can choose regular recurring deposit accounts, if they are above 18 years of age. These account holders may earn a fixed rate of interest on the principal sum that you deposit each month for a specified duration. Based on the account’s age, the calculation of interest is done using a simple or compound interest mechanism.
- RDs (recurring deposits) for minors - People who are less than 18 years of age may get accounts in their names, only with the supervision of their legal guardians or parents. When opening this account, you will have to select a fixed monthly amount and a specific tenure for the RD, just like the regular one.
- RDs (recurring deposits) for senior citizens - Those who are above 60 may open RDs or recurring deposits and may receive higher rates of interest, depending on the policies of the bank or financial institution. The other procedures are absolutely similar, in terms of account opening, selecting the investment amount and tenure, and so on.
- NRO/NRE Recurring Deposit Account - Those who are NRIs (non-resident Indians) may open NRO (non-resident ordinary) and NRE (non-resident external) accounts. The funds from NRE accounts may be used for investing in RDs and income tax in India will not be payable on NRE RDs.
What Is the Eligibility for a Recurring Deposit?
Are there any eligibility guidelines for opening an RD account? Here are some factors that are worth noting in this regard.
- You have to be a resident Indian or HUF (Hindu Undivided Family) to set up your recurring deposit.
- Minors can also open recurring deposits for building up their future savings.
- In some cases, like with Unity Small Finance Bank, you may be required to open a savings account with the bank before starting a recurring deposit. Please note that this requirement varies from one bank to another.
What Is the Tenure for a Recurring Deposit?
The tenure for a recurring deposit varies according to the bank policies. You can usually open an RD account for a minimum of 6 months and this may increase to 120 months, based on your requirements.
What Is the Amount for a Recurring Deposit?
The minimum amount needed to invest in an RD scheme usually starts from just Rs. 1,000 per month. You can invest any amount, depending on your investment goals and targets.
What Are the Documents Required to Open Recurring Deposits?
In most cases, you will be required to open a savings account with the bank where you set up your RD account. Hence, you will have to furnish proof of this account to the bank for starting your recurring deposit. At the same time, you may be required to provide KYC documents like your identity and address proof for the account.
Opening a Recurring Deposit
Opening a recurring deposit is an otherwise simple process. You should fix your desired amount, payment frequency, and overall duration, along with your preferred nominee. Thereafter, you can go to your bank branch and fill out the application form along with paying the first month’s deposit amount in cheque/cash while furnishing identification and address proof documents as required. The rest of the procedure will be done by the representative of the bank. You can also open a recurring deposit online after you login to your online banking account. Find the open to open e-RD accounts and then provide the desired information regarding your personal details, the amount of the installment, chosen duration, etc. Include the statement of the beneficiary and also the applicable interest rate. Once you confirm the date of maturity, you can accept the terms and conditions before sending the application. An RD receipt will then be dispatched to your address while a confirmation message will appear accordingly. Thereafter, the pre-fixed amount will be automatically debited from your account. In case your recurring deposit is closed prior to the completion of the original tenure, then the interest payout will be done at the applicable rate for the duration where the deposit was kept with the bank. For premature withdrawals, a penal interest rate may be imposed on deposits as per the bank’s directives on the deposit date.
How Are Recurring Deposits Different from Fixed Deposits?
Are there any differences between fixed deposits and recurring deposits? The only key difference is that recurring deposits take investments which are done at regular intervals (monthly). They are suitable for those who wish to invest minimal amounts every month to build up their future savings. Fixed deposits, on the other hand, are one-time investments for a particular tenure.
Is There TDS on Recurring Deposits?
The interest income on your recurring deposit will be taxable at maturity. Banks usually deduct TDS (tax deducted at source) on the RD interest income based on the provisions of the Income Tax Act.
What Are the Recurring Deposit Interest Rates?
How much can you earn on your RD investment? Interest rates usually vary across banks and may hover between 4.50-9.50% like other deposits like FDs in most cases. The formula for calculation is the following: The formula for calculation is the following
M= R[(1+i)n-1]/1-(1+i)-⅓
Here, M indicates maturity value while R indicates the monthly installment amount. The n and i parameters are representative of the total number of quarters and interest rate respectively.
Hence, investing in RDs can help you amass wealth for the future. You can invest in a risk-free manner in recurring deposits which have attractive interest rates and zero market risks. They are better alternatives to various other types of investments.
What is a Loan Against RDs?
You may obtain a loan against your recurring deposit at several banks and financial institutions. A certain percentage of the amount in your RD account will be sanctioned as the loan in this case, which varies across banks. Failure to repay the same as per the prevailing terms and conditions may lead to the bank deducting it from your RD account.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
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