Recurring Deposit
Build your savings penny-by-penny!
Recurring Deposit (RD) is one of the popular savings options, which helps you to plan for your future financial needs.
Usually an individual who earns a regular income makes a financial provision for his/her future by investing a small amount of their income on a regular bases in a recurring deposit (RD). This amount is deposited on a regular basis for a period that is pre-determined while it earns interest at par with fixed deposits.
Recurring deposit contributions are considered as the safest and trusted as well as hassle-free investments. As it is the most disciplined and systematic ways of investment, people who belong to the salaried category mostly find it useful to invest in. A regular deposit of a certain amount for a particular tenure at a predetermined interest rate is all about a Recurring Deposit. An individual can achieve short-term financial goals by investing in a Recurring deposit account. Besides, being the most accessible tool of investment, Recurring deposit is popular amongst Indians. All Banks and financial institutions offer a Recurring Deposit account, however the rate of interest varies from one bank to bank. You can keep a Recurring deposit (RD) of an amount as little as 10 rupees. This amount fixed by you will be deposited each month in to your RD account till the completion of the tenure. The interest rate is credited annually, but, the compounding is done post the end of each quarte.
Common Questions - Recurring Deposit
Does RD provide a compounded interest?
The interest on the Recurring deposit is calculated quarterly. The interest rate is predefined by the bank at the start of the financial year.
How does RD work?
In a Recurring deposit all you need to do is pay a predetermined amount every month for a specified tenure and you will receive the maturity amount along with the interest on completion of the maturity
- Login to the net banking of the bank wherein you hold a savings bank account to open a RD account
- Select the bank account that you want to link the RD account to
- Choose the RD amount and the tenure that you wish to invest in
- In case you are a senior citizen, select the relevant option
- Read the terms and conditions of the Recurring deposit
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Enter OK
- Your RD will get created and a reference number will also be generated.
The main features of a Recurring Deposit account are as follows:-
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Recurring Deposit schemes helps in effective money saving habit
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You can deposit an amount as small as Rs.10 in to your Recurring deposit account. But, this amount will however vary from one bank to another
- The minimum period of deposit starts from 6 months and may extend to the maximum period of 10 years in most RD Accounts.
- RD interest rates are usually equal to a Fixed Deposit that is generally higher than any other Savings scheme provided by banks. A recurring deposit calculator will help you figure out the amount that you will get back on the maturity of the Recurring deposit tenure.
- You cannot withdraw prematurely from a RD accounts. But, the bank may permit closure of your RD account prior to the maturity period by charging a penalty for the RD premature withdrawal.
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You can also apply for a loan against your RD
- You can fund the RD account periodically directly from your Current or Savings account by giving standing instructions to the bank.
- Usually senior citizens would be offered an additional 0.5% interest on the Recurring deposit.
Some of the frequently asked questions about Recurring Deposit
The rate of interest in case of a RD is compounded on a quarterly basis.
This interest rate can be calculated using the formula: M = R[(1+i) n – 1] 1- (1+i) -1/3 wherein, M = Maturity value of the RD, R = Monthly RD instalment to be paid, n = Number of quarters (tenure), i = rate of interest.
The compounded interest on the value of RD will be calculated only by the end of the first quarter. The Financial Quarters are:
- 1st Quarter = April to June
- 2nd Quarter = July to September
- 3rd Quarter = October to December
- 4th Quarter = January to March
You cannot deposit RD online in the post office. However, you can get it done via ECS (Electronic Clearing Service)
You cannot withdraw the RD amount prematurely. All you need do is close the Recurring deposit account and then receive the amount that you had invested so far. The bank will however charge you a penalty for pre-closure
The interest on the Recurring deposit is calculated quarterly. The interest rate is predefined by the bank at the start of the financial year
Eligibility Criteria ..
If you are an Indian resident, you can open a RD account. You may open a recurring deposit with a bank with an amount as small as Rs.100/month. However, there are certain banks who may need a minimum amount of Rs.500 as a recurring deposit.
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