A recurring deposit is similar to a SIP (Systematic Investment Plan), in a mutual fund. You want to invest in a fixed deposit but do not have sufficient money to do so.
A recurring deposit is similar to a fixed deposit, only you invest small sums of money regularly which earns an interest equal to a fixed deposit.
You will have to first open a savings bank account in your bank. You deposit money into this savings bank account.
A fixed sum of money is deducted regularly (say each month), from your saving bank account and transferred to your recurring deposit.
Why invest in a Recurring Deposit Account?
You can start small: Find investing a large amount in fixed deposit difficult? Invest small sums of money and earn interest at the same rate as a fixed deposit.
The rate of Interest is Fixed: The rate of interest is fixed when you invest in a recurring deposit. You are insulated from a swing in the interest rates.
Forced Saving: You invest a fixed amount of money and can withdraw your money, only after a certain fixed time. You are forced to save.
Plan your Goals: You can set money aside for short-term goals such as marriage expenses, buying a car or even going on a holiday.
Eligibility for Recurring Deposit AccountIf you are a resident of India, you can open a recurring deposit account. A recurring deposit at a bank can be opened with an amount as less as INR 100 a month. Some private banks require you to make a recurring deposit of at least INR 500 a month.
What is the tenure of your recurring deposit?
Interest on your recurring deposit
- Many recurring deposits pay an interest rate of 8.5-8.7% a year. This interest rate can go as high as 9-9.2% a year for a recurring deposit if you make a deposit of 1-5 years.
How to apply
- You can apply for a recurring deposit account at your nearest bank branch. You have to fill the application form and submit the relevant documents.
- You require proof of identity and address: passport/ driving license/ voter’s identity card/ PAN card/ ration card/ recent utility bills/ credit card bill. This is necessary for the KYC (Know Your Customer), procedure.
Concepts & FAQ’s Recurring Deposit Accounts
What is a Recurring Deposit?
The Recurring deposit account is an account in the bank where an investor deposits a fixed amount of money every month for a fixed tenure (mostly ranging from one year to five years). This scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum after some years. The small monthly savings in the Recurring Deposit scheme enable the depositor to accumulate a handsome amount on maturity. Interest at term deposit rates is computable on a quarterly compounded basis.
Features of Recurring Deposit Account
- The main objective of recurring deposit account is to develop regular savings habit among the public.
- India, the minimum amount that can be deposited is Rs.10 at regular intervals.
- The period of deposit is minimum six months and maximum ten years.
- The rate of interest is higher.
- No withdrawals are allowed. However, the bank may allow closing the account before the maturity period.
- The bank provides the loan facility. The loan can be given up to 75% of the amount standing to the credit of the account holder.
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Frequently Asked Questions
For what period can I open a Recurring Deposit account?
You can open a Recurring Deposit account for a minimum period of 6 months, and thereafter in multiples of 3 months up to a maximum period of 10 years.
How will an RD account be operated?
A monthly deposit (RD Installment) of a pre-fixed amount is made in the RD account and on maturity; the depositor gets back the amount deposited, along with interest calculated at the rate applicable at the time of opening of RD account.
Is TDS applicable on Recurring Deposits?
No, TDS is not applicable on Recurring Deposits as per Income Tax rules.
Is an overdraft facility allowed on a Recurring Deposit?
Currently, there is no overdraft facility allowed on a Recurring Deposit.
Can more than one installment be paid at any given time?
Yes, but there will be no interest paid on any additional amount deposited other than the installment due.
Will I get a receipt for my Recurring Deposit?
No, you will not get a receipt of your RD however the details of the RD would be updated in your account statement.
Is a Nomination facility available on an RD account?
Do Senior citizens get any extra benefit from Recurring Deposits?
Yes, most of the companies offer extra benefits in the form of higher interest rates.
Can I redeem my Recurring Deposit before the original term?
Yes. In the event of the Recurring Deposit being closed before completing the original term of the deposit, interest will be paid at the rate applicable on the date of deposit, for the period for which the deposit has remained with the Bank. In case of premature withdrawal, the deposit may be subject to a penal rate of interest as prescribed by the Bank on the date of deposit.
Can I change the nominee(s) for my Recurring Deposit?
You can change the nominee(s) during the currency of the accounts with the Bank, by making a declaration effect in the appropriate form prescribed by the company
What are the advantages of Recurring Deposit Account?
- Recurring deposit encourages regular savings habit among the people.
- Recurring deposit account holder can get a loan facility.
- The bank can utilize such funds for lending to businessmen.
- The bank may also invest such funds in profitable areas.