Recurring deposit (RD) is a popular savings alternative to fixed deposits and long-term post office schemes among investors. In a recurring deposit, one has to save a certain amount every month for a fixed tenure.
At the end of the tenure, the maturity amount is paid back to the individual which includes the principal invested and the interest earned. Some RDs can be for a variable amount while in most cases it is a fixed amount that is saved each month.
When one does not have a lump sum to save for a short-term goal, RD comes in handy as it helps to save some amount each month. Ultra-conservative investors who look for fixed returns with no volatility may consider an RD to create a corpus to meet the goal which is about a year away.
One can open a recurring deposit either with a bank or with the post office. The minimum amount of investment varies from bank to bank and you can generally invest with a minimum amount of Rs 500 or Rs 1,000. The tenure usually ranges from six months to a maximum of 10 years. In some banks, for online RD, the minimum tenure maybe 12 months. The investment amount is lower at Rs 10 per month for post office RDs but the tenure of investment is five years.
The RD account may be opened either offline by visiting a bank where you have a savings account or by logging on to the bank’s net banking. For opening the RD in the post office, one has to visit the nearest post office.
|Name of the Bank||Senior Citizen RD Interest Rates (p.a)||Regular RD Interest Rates (p.a)|
|HDFC Bank RD Interest Rates||5.00% – 7.00%||4.50% – 6.50%|
|SBI RD Interest Rates||3.50% – 6.90%||3.00% – 6.10%|
|Bandhan Bank RD Interest Rates||3.75% – 8.00%||3.00% – 7.50%|
|Kotak Mahindra Bank RD Interest Rates||6.00% – 6.90%||5.00% – 6.40%|
|IDFC FIRST Bank||5.00% – 6.75%||4.50% – 6.25%|
|YES Bank RD Interest Rates||6.00% – 7.50%||5.50% – 7.25%|
|RBL Bank RD Interest Rates||7.25%||7.25%|
How to Open RD Account Online:
It is very convenient to open an RD account online via net banking. Before opening an RD account, it is important to check the rate of interest for different tenures. Many banks also have a recurring deposit interest calculator where you can check the final maturity amount and the interest on the deposit.
To open an RD account, you need to log in to Net Banking. Depending on the bank, the net banking structure will be different. You need to select the option to open a new recurring deposit account. Once you select that, you need to decide the installment amount and the tenure. You will also need to select the account to link to your RD account i.e. current account or savings account.
One important thing to remember is to specifically choose the ‘Senior citizen’ option if you are eligible. Most banks give a higher rate of interest to senior citizens.
The next important point to remember is the maturity instructions. Depending on whether you immediately need the funds or not, you can opt for a maturity of the entire principal and interest amount, or convert the entire amount to a fixed deposit. You also have the option of converting the principal amount only into an FD. If you decide to convert it into an FD, then you need to decide the tenure for the FD as well.
The last detail you need to take care of is the nomination details. It is recommended to set up a nomination for your investment especially if you have an account under a single name.
Once these details are entered, you need to submit them and the bank debits your account. Once the account is debited, the RD gets created.
How to Open RD Account Offline:
Opening an RD account offline is also very simple. All you need to do is go to the bank branch and fill up a form for opening a recurring deposit account. You need to fill up the required details and submit them to the bank along with a cheque for the installment amount. If you are a customer of the bank then you need to put in your bank account details along with other details such as maturity instructions and nomination details.
If you are opening an RD account in a bank in which you do not have an account, then you will have to provide your KYC documents along with the account opening form and other details. You will need to decide the RD tenure, the installment amount, the nomination details, and the maturity amount. You will need to either give standing instructions to your bank for a periodic debit to the bank account or personally deposit money in your RD account to ensure the installments are met. If you want to get an exemption from TDS on your interest, be sure to submit Form 15G/15H.
Once the RD is processed and opened, the bank will provide an RD certificate bearing all the details.
Recurring Deposit – Eligibility Criteria
- Any individual.
- Any minor who is above 10 years of age is eligible to open a recurring deposit account if he or she provides proof of the name.
- Any minor who is below or equal to 10 years of age under the guardianship of a natural or legal guardian.
- Any corporate, company, proprietorship, or commercial organization.
- Any government organization.
Recurring Deposit – Documents Required
- Application forms can be obtained from the bank you select to open the recurring deposit account in.
- Passport-size photographs of the applicant.
- Identity proof and address proof of the applicant’s willingness to open the recurring deposit account.
- KYC documents if the bank requests them.
Benefits of Investing in Recurring Deposit
Investing money in a recurring deposit account is a shrewd investment as the principal amount invested is almost guaranteed to give a return. The rate of return offered on it is also attractive. All this makes the recurring deposit a smart investment option.
Some of the other benefits of investing money in a recurring deposit account are:
- A simple financial product to invest in: A recurring deposit is one of the simplest financial products in the world to invest in. The concept of investing money in it is pretty simple. For any person who is new to the world of financial investment, experts always advise the person to invest their money in a recurring deposit account. Initial investments in recurring deposits also develop good investing habits for the individual.
- Guaranteed returns: Unlike equity and mutual funds, recurring deposits offer guaranteed returns on the principal amount invested in the short term.
- Tenure and the minimum amount to be deposited: The tenure of a recurring deposit account usually varies from 6 months to 10 years. The depositor can select the short-term, medium-term, or long-term period for investment in a recurring deposit account. Also, the minimum amount to be deposited to open an RD account is Rs.100 for public sector banks and varies from Rs.500 to Rs.1,000 for private sector banks such as ICICI or HDFC bank which is not a huge amount to deposit at the beginning.
- Anytime withdrawal: Recurring deposit accounts also offer the facility of withdrawal of the account anytime. The bank might charge a small fee for it but it is still a good option for the depositor to have in case he or she needs the deposited money along with the return on it urgently.
- Loan against deposit: Banks also provide the facility of loans against recurring deposits. A depositor can avail of a loan amount equivalent to 90-95% of the total money deposited in the recurring deposit account depending on the bank.
- Flexible recurring deposits: Another advantage of investing money in a recurring deposit account is flexibility. A flexible recurring deposit is a scheme in which a person can invest any amount of money (greater than the minimum amount) at any interval of time. Some banks also allow the facility for the depositor to skip an installment without paying any penalties
Recurring deposit accounts are the safest way to invest because they are unaffected by market conditions. Furthermore, such an account allows the account holder to save extra money and receive the matured amount as well as the earned interest after maturity. Before investing in recurring deposit accounts, it is advisable to compare the number of banks, their interest rates, recurring deposit account policies, etc.