Savings can help people combat emergencies as well as fulfil their financial goals. Hence, saving money is essential to improve your lifestyle and secure your future. Most people seek low-risk investment tools with assured returns. One such investment option that has gained popularity over the years is the Recurring Deposit (RD). A significant advantage of opening an RD account is that you can select your investment amount, tenure, and other related benefits.
An Introduction to Recurring Deposit
An RD is an investment tool that allows investors to make structural monthly investments and reap decent returns. It is a great way to save money over a certain period.
Though the minimum investment amount varies from one bank to another, you can begin with a minimum investment of Rs 500 monthly. It is an excellent option for people who wish to invest a fixed monthly amount to get a payout after a stipulated period.
If you do not have a significant amount to meet any short-term goal, depositing a small portion of your monthly income to your RD account can serve the purpose. The primary purpose of the RD is to allow the investor to get additional interest on the principal amount at the time of maturity. Therefore, the interest rate on RD is generally attractive and identical to that of an FD.
How Does the Recurring Deposit Work?
In Recurring Deposits, investors invest a specific amount monthly. The deposit you make matures on a specified date in the future, along with the instalment you make every month. When you open your RD account, the bank will withdraw the amount from your savings or current account and credit it into your RD account. The maximum period of an RD is 10 years, and the minimum is 6 months.
When you open a Recurring Deposit account, the maturity value will be indicated to the account holder. The monthly instalment will be assumed to be paid on the scheduled dates. But if any of your instalments are overdue, you will receive less interest, which is insufficient to reach the maturity value. It must be noted that you cannot alter the term or deposit amount. Also, there will be no quarterly or weekly deposit options.
You must also note that TDS, or Tax Deducted at Source, is applicable on the RD. If interest gained on RD and FD exceeds Rs 10,000 in a financial year per customer ID, the bank will deduct TDS at 10%. Also, Income tax is payable on the RD earned according to the RD holder’s tax slab rates.
How to Open a Recurring Deposit Account?
Banks offer customers the opportunity to open RD accounts. Indian Post also offers a wide range of Post Office Recurring Deposit Schemes. Opening an account is simple and includes the following steps:
- You can open an RD account at a bank where you already have a savings account.
- If you wish to open an RD account in a bank you don’t have an account with, you must submit an application form. You must also submit the necessary KYC details with them for an account opening.
- Once you open the account, you have to decide the deposit amount and the tenure. You can deposit the monthly payments via online banking, ECS, or fund transfer.
Perks of Opening a Recurring Deposit Account
An RD is a risk-free and smart investment option that you can select to get a lump sum amount at maturity. Here are some advantages that an RD account offers –
- Beneficial for fulfilling your financial goals
An RD is a risk-free investment option that offers guaranteed returns, making it suitable for long- and short-term goals. Therefore, by investing in RD you can fulfil your financial goals which might include –
- Overseas vacation
- Education costs of your children
- Home renovation and furnishing cost
- Handling marriage expenses
- Online RD features
One of the significant Recurring Deposit Benefits is that you can deposit the monthly installment with a few taps. Apart from depositing the money in your RD account, you can view transactions, update information, check deposit details, etc. You can do all of this online without stepping out of your home.
Decent interest rate
RD interest rates mainly depend on the deposited amount and the tenure. You may get a higher interest rate if you are a senior citizen. Before opening an RD account, consider using the RD calculator to determine how much interest you will receive on your deposited amount.
- Easy investment option
The easy documentation process and flexibility to deposit a fixed amount are the benefits of an RD that will help you establish a saving discipline. If you are an employee, keeping a specific amount aside to deposit in RD every month will be more straightforward. Additionally, the RD offers excellent Return on Investment (ROI), and its interest is locked, safeguarding you from interest rate fluctuation.
Conclusion
Among various investment schemes available, the Recurrent Deposit is one of the popular and preferred investment options. If you are a risk-averse investor searching for a promising and high return on investment scheme, RD can be an ideal choice.
