Recurring Deposit

What is a Recurring Deposit?

A Recurring Deposit (RD) is a financial savings scheme offered by banks and financial institutions, enabling individuals to deposit a fixed amount of money at regular intervals, typically on a monthly basis. The RD tenure usually ranges from 6 months to 10 years. Over the deposit period, the money accumulates with interest, and at maturity, the depositor receives the total amount along with the interest earned. RDs are a popular choice for people with regular income and those seeking a disciplined approach to savings. It offers a safe and predictable way to build savings and achieve financial goals. The interest rates on RDs are generally fixed for the entire deposit period, providing assurance to depositors regarding the returns on their investment.

Features of Recurring Deposit

The attributes of a Recurring Deposit (RD) comprise:

Regular Monthly Deposits: A Regular Deposit (RD) scheme entails depositing a fixed amount each month, allowing flexibility with contributions starting from just a few hundred rupees. This accessibility accommodates individuals across different income brackets.

Fixed Tenure: The RD has a predetermined tenure, usually ranging from 6 months to 10 years. The depositor cannot withdraw the money before the maturity period without incurring penalties.

Interest Rate: Interest rates for Recurring Deposits (RDs) are set when you open the account and stay unchanged throughout the duration. These rates can differ between banks or financial institutions.

Compounding of Interest: Interest in an RD is compounded at regular intervals (usually quarterly) and added to the principal amount, contributing to higher overall returns.

Guaranteed Returns: RDs offer guaranteed returns as the interest rate is predetermined, providing certainty to the depositor about the final maturity amount.

Flexibility in Deposits: Certain recurring deposit schemes offer depositors the flexibility to adjust their monthly deposit amounts within specified boundaries, granting them a level of adaptability in their savings approach.

Auto-Debit Facility: Many banks offer the convenience of an auto-debit facility, where the monthly deposit amount is automatically deducted from the depositor’s linked savings account.

Partial Withdrawals: In case of emergencies, some RDs allow partial premature withdrawals, but this may be subject to penalties and can impact the overall interest earned.

Nomination Facility: RD accounts can have a nomination facility, allowing the depositor to nominate a beneficiary who would receive the maturity amount in case of the depositor’s unfortunate demise.

No Risk: RDs are considered low-risk investment options as they are backed by the deposit insurance up to Rs. 5 lakhs per bank under the Deposit Insurance and Credit Guarantee Corporation (DICGC).

No Market Fluctuations: Unlike some other investment options like mutual funds or stocks, RDs do not face market fluctuations, making them a stable savings option.

Regular Savings Discipline: RDs encourage individuals to cultivate consistent savings behaviors by obliging them to make monthly deposits into the account.

Eligibility for a Recurring Deposit

Eligibility Criteria:

Age: Individuals of all ages, including minors, are eligible to open an RD account.
Citizenship: Resident Indians and Non-Resident Indians (NRIs) are eligible to apply.
KYC: Completion of the KYC process is mandatory for account opening.

Documents Required to Open a Recurring Deposit Account

Documents Required:

Identity Proof: Valid identity proof such as Aadhar card, passport, voter ID, or PAN card.
Address Proof: Valid address proof like utility bills, rental agreement, or Aadhar card with current address.
Passport-sized Photographs: Recent passport-sized photographs of the account holder(s).
NRI Documents (if applicable): In the case of NRIs, additional documents like passport, visa, and overseas address proof may be required.
It is essential to check with the specific bank or financial institution for any additional documents or requirements they may have for opening an RD account.

Key points about Recurring Deposits

Here are some key points about RDs:

1. Regular Saving: Regular Deposits (RDs) foster the practice of consistent savings through monthly deposits of a predetermined sum, cultivating a disciplined saving habit.
2. Duration: You can choose the duration of your RD, which can range from a minimum of six months to a maximum of 10 years.
3. Interest Rates: RDs offer competitive interest rates, allowing your savings to grow over time.
4. Loan Facilities: Some banks may provide loan facilities against your RD, which can be helpful in times of financial need.
5. Premature Withdrawal: In case you need to withdraw your RD before the maturity period, it’s possible, but there may be some penalties or charges involved.
6. Senior Citizens: Senior citizens are eligible for higher interest rates on RDs, which can be beneficial for their savings.

Types of RDs

1. RD for Senior Citizens: This RD scheme is specifically designed for senior citizens and offers higher interest rates compared to regular RD accounts.
2. RD for NRI/NRE: NRIs can also invest in RDs through NRE or NRO RD accounts, allowing them to save and earn returns.
3. Flexi RD: Flexi RD offers the flexibility to deposit varying amounts each month, as long as it’s in multiples of the core deposit amount. The interest is calculated based on the duration and the core multiples.