There are several ways in which an investor can invest to create wealth in the short and long term. A recurring deposit (RD) is a type of financial instrument that allows people to save money and earn interest on the savings. It requires you to make regular deposits over a predetermined period. This type of investment is becoming increasingly popular as it offers high returns with low risk.
In this article, we will discuss what is a recurring deposit, how it works, and its features in detail. With this information, you will gain an understanding of the basics of a recurring deposit and its potential benefits. So, if you are interested in learning more about how recurring deposit works, read on!
What is a Recurring Deposit (RD)?
Recurring deposit, the full form for RD, is a savings account that can be used as a tool for investment where you can make monthly investments and save your money over a time period.
Ideally, recurring deposits are more flexible than FDs, fixed deposits, since they are rigid and perfect for people who are looking to open a separate account for saving.
Learn in detail – FD vs. RD: Which Is The Best Savings Option For You?
Here are some main points you need to know about an RD:
|Recurring Deposit (RD) savings|
|Interest Rate||Anywhere between 2.5% to 8.5%|
|RD Minimum Monthly Amount||₹100|
|Maximum Monthly Deposit||₹1.5 Lakh|
|RD Minimum Tenure||6 months|
|RD Saving Maximum Tenure||10 years|
|Premature Withdrawal||Allowed with penalty|
|Partial Withdrawal||Not Allowed|
How Does a Recurring Deposit Work?
Here’s how a recurring deposit works:
- After opening a recurring deposit account, select the amount you want to deposit each month and the duration in which you want to deposit
- You have to deposit the fixed amount every month on the fixed date for the decided tenure, which can be between six months to ten years
- The interest you earned on your investment is calculated every quarter and is added to your deposited amount
- Once the maturity period gets over, you will be given the deposit amount added along with the interest rate that’s earned over the tenure
Get started with your Freo Savings Recurring Deposit Account and earn 8.7%* interest on your savings!
What are the Features of a Recurring Deposit Account?
Is an RD saving account perfect for your savings and investment needs? Learn about its features to analyse your decision better:
- You can invest as little as ₹100 every month
- The minimum deposit tenure starts from 6 months and ends at 10 years
- The interest rate is compounded quarterly and is higher than a regular savings account
- RD saving accounts have 30 days to three months lock-in period (depending on the bank), and any withdrawal within this period will not gain interest
- You can open as many RD accounts as you like
- Partial withdrawals are not allowed, but premature withdrawals are allowed, along with some penalties
- Advance deposits may be allowed by some banks and the post office
- You can make monthly payments instead of a lump sum deposit
- An additional 0.5% interest rate may be given to senior citizens
- Manual interaction is not required for deposits. You can automate deductions from your savings account to your RD account
- Loan and overdraft facilities are available
- An RD account can be opened for a minor under the supervision of a guardian or parent
What is the minimum amount required for opening a recurring account?
You can open a recurring account with a minimum amount of ₹100.
What is the minimum tenure for RD?
You can open your recurring deposit account for a minimum period of six months.
Is the interest earned on your RD taxable?
Yes, like every savings account, even RD is subject to TDS (Tax Deducted at Source) of 10%. This TDS is applicable only when the interest you have earned is more than ₹10,000. If you don’t provide your PAN card details, you will be subjected to a TDS of 20%.
How much interest can you earn from a recurring account?
The interest you earn on your recurring deposit varies from bank to bank, but usually, it is between 2.5% to 8.5%.
Can you deposit different amounts in your RD saving account every month?
No, you cannot deposit different amounts every month in a regular RD saving account. The amount deposited is fixed when you open an RD account.
What is the penalty for a late deposit in your RD?
If you miss depositing the amount for a month, you have to pay a penalty of ₹1.50 for every ₹100.
What is the premature withdrawal penalty in a recurring deposit?
About 1% to 2% on the accrued interest portion is taken as a penalty by the bank or the financial institution for a premature withdrawal from your RD account.
Ready to make regular saving a habit? Open a recurring deposit (RD) account with Freo and start building your wealth today!