Back To Basics: All You Need to Know About Recurring Deposits

If you are planning to park your money in a disciplined manner with small investments at regular intervals, then recurring deposits can be the right investment vehicle for you.  

Here’s how you can open a recurring deposit account and the benefits it will fetch you.

What Is A Recurring Deposit (RD) Account?

Recurring deposit (RD) accounts are a type of investment vehicle that lets investors park their money on a regular basis, typically in a monthly mode. 

Investors can select the deposit term and monthly payment amount according to their convenience. 

A recurring deposit offers more flexibility than a fixed deposit, as the latter requires the entire amount to be deposited in entirety or lump sum at one go. In RDs, you can set an amount, and your instalment will go into your RD account on a monthly basis.

The rate of interest on RDs is 2.5-7.0 per cent, and the minimum monthly deposit amount is Rs. 100. The investment tenure can be anything from six months to 10 years. 

Additionally, the interest compounding frequency is quarterly. Partial withdrawal is not allowed, while premature withdrawal is allowed subject to penalty. 

Different Types Of RDs

There are multiple types of RDs that you can open with your bank. They are as follows.

Regular RD Accounts: Indian citizens who are 18 years or older can open a regular RD account. The account permits the accountholder/s to deposit a fixed amount into the account once each month for a predetermined period in order to receive a fixed interest on the deposit amount. Based on the length of the tenure, either a compound or simple interest approach will be used to calculate the interest.

RD Accounts For Minors: These accounts will be opened in the names of people under the age of 18 years, but only under the supervision of their parents or legal guardians. Similar to the regular RD accounts, the account will be opened with a specified monthly instalment and duration. In comparison to regular RD accounts, the returns could be slightly higher or similar.

RD Accounts For Senior Citizens: For senior citizens (i.e., individuals aged over 60 years of age), banks offer special RD accounts. Senior citizens occasionally receive a higher rate of interest on their RDs than other clients. The interest is compounded on a quarterly basis.

NRE/NRO RD Accounts: Through these accounts, non-resident Indians (NRIs) can save money each month on income from both within and outside India, while also earning a good rate of interest.

Interests Rates By Indian Banks On RDs 

India’s largest public sector bank, the State Bank of India, gives an interest rate of 5.45 per cent to 5.65 per cent. For senior citizens, it is 5.95 per cent to 6.45 per cent.

HDFC Bank gives an interest rate 3.75 per cent and 5.75 per cent for regular RDs account, and 4.25-6.50 per cent for senior citizens.

ICICI Bank gives an interest rate of 4.00 per cent to 5.90 per cent for regular accounts, and 4.50 per cent to 6.60 per cent for senior citizens. You can check the RD rates offered by different banks on their respective websites.

Some Other Interesting Facts About RDs

TDS On RDs: As of June 1, 2015, and in accordance with the Finance Bill, 2015, TDS will be applicable on the interest gained on the recurring deposit payable during the financial year.

Nominee In RDs: When opening a recurring deposit account, you will also need to provide the name of a nominee or beneficiary who will be in charge of collecting the proceeds on your behalf when the deposits reach maturity. Altering your nominee or beneficiary is an additional choice.

Senior Citizen Advantage: Senior citizens get an additional 0.5 per cent more on their deposits.

Formula To Calculate RDs: The formula is as follows. M = R [(1+i) n - 1]/ 1 - (1+i) -1/3. In the formula, ‘M’ stands for maturity value, ‘R’ stands for monthly instalment, ‘n’ stands for number of quarters, ‘i’ stands for rate of interest/400.