Recurring Deposit

Introduction:

Recurring Deposit (RD) stands out as a favored choice among low-risk investment avenues in India, offering moderate and guaranteed returns. It grants customers the flexibility to determine their investment amount and tenure, complemented by various advantages.

Featuring flexible tenure options spanning from 6 months to 10 years, this investment instrument, available through numerous banks and NBFCs, facilitates the systematic accumulation of monthly savings for both short and long-term financial objectives.

By committing to a minimum monthly investment over the chosen term, investors can ensure steady wealth accumulation, even without a lump sum to fulfill immediate goals. Depositing a portion of one's income into the RD account each month proves to be an effective strategy for meeting short-term aspirations.

Features of Recurring Deposit

Recurring Deposit (RD) ensures a fixed interest rate on the invested sum, disbursed at regular intervals until the predetermined tenure expires or upon reaching maturity. Upon maturity, the invested capital along with the accrued interest is returned to the investor.

Key Features of Recurring Deposit:

  1. Cultivating a Savings Culture: RD schemes foster a culture of savings within the community.

  2. Flexible Minimum Deposits: The minimum deposit amount varies across different banks, sometimes as low as Rs. 10.

  3. Tenure Range: RDs typically have a minimum deposit period of six months and a maximum of ten years.

  4. Competitive Interest Rates: RDs offer interest rates comparable to those of fixed deposits, often surpassing rates offered by other savings schemes.

  5. Withdrawal Policies: While certain banks and NBFCs prohibit premature or mid-term withdrawals, others allow them with penalties.

  6. Loan Facilities: RDs provide the option to avail loans against the deposited amount, usually ranging from 80% to 90% of the deposit value, varying among lenders.

  7. Standing Instructions: RD contributions can be conveniently funded through Standing Instructions, allowing customers to instruct the bank to credit their RD account monthly from their Current or Savings Account.

Recurring Deposit Interest Rates - 2024

Banks

Interest
Rates (PA)
Interest
Rates (PA)
Interest Rate
for Seniors (PA)
Interest Rate
for Seniors (PA)


3.0% - 7.2%

3.0% - 7.2%

3.5% - 7.85%


4.3% - 7.25%

4.3% - 7.25%

4.8% - 7.75%

Bandhan Bank RD Interest Rate

Bandhan Bank RD

Interest Rate

3.0% - 7.25%

3.5% - 7.75%

₹15,000

Kotak Mahindra Bank RD Interest Rate

Kotak Mahindra

Bank RD Interest Rate

Kotak Mahindra Bank RD

Interest Rate


4.0% - 7.25%

4.0% - 7.25%

4.0% - 7.75%

IDFC First Bank Rd Interest Rate

Central Bank
of India


3.5% - 7.0%

3.5% - 7.0%

4.0% - 7.5%

YES Bank RD Interest Rate

YES Bank RD

Interest Rate

7.45% - 7.75%

7.95% - 8.25%

RBL Bank RD Interest Rate

RBL Bank RD

Interest Rate


3.0% - 7.25%

3.0% - 7.25%

3.5% - 7.75%

Eligibility for a Recurring Deposit

RD is accessible to all individuals.

  1. Minors aged 10 and above can initiate an RD account upon presenting valid identification.

  2. Minors aged 10 or younger can establish an RD account under the supervision of a natural or legal guardian.

  3. RD is open to corporate entities, proprietorships, and commercial organizations.

  4. Government organizations are also eligible to avail RD facilities.

Corporate Fixed Deposit

These fixed deposit schemes are offered by corporations aside from banks. Referred to as company FDs, investing in these instruments can sometimes yield higher returns.

Standard Fixed Deposit

Standard plans are straightforward investment schemes in which you deposit a fixed sum with a financial institution. Once the set maturity period ends, you are entitled to receive both the principal and the accrued interest from the investment.

Senior Citizen Fixed Deposit

People over 60 years old can also invest in fixed deposit instruments. Many plans designed for this age group provide flexible investment durations. Furthermore, senior citizens typically receive higher interest rates on their investments than those offered in standard schemes.

Tax-saving Fixed Deposit

If an investor's primary objective is tax savings, they can opt for tax-saving fixed deposits. These plans cap the annual deposit at Rs. 1.5 Lakh and come with a mandatory lock-in period of 5 years.

Cumulative Fixed Deposit

In these fixed deposit schemes, interest is compounded on a quarterly, semi-annual, or annual basis. Yet, the total interest accrued is only paid out at maturity. Choosing this type of FD can significantly enhance your investment corpus.

Non-cumulative Fixed Deposit

Interest from fixed deposits can be paid monthly, quarterly, or semi-annually, making this option ideal for investors seeking a steady income stream. This feature is particularly beneficial for retirees who rely on regular income from their investments.

Flexi Fixed Deposit Plans

In this arrangement, funds are transferred between a savings account and a fixed deposit account. To start investing in Flexi FDs, investors must link their fixed deposit account to their savings account. This type of FD plan offers high interest rates on deposits while providing liquidity.

NRO Fixed Deposit Accounts

Non-resident Indians (NRIs) can deposit their income earned in India into an NRO fixed deposit account. Interest accrued on these FD accounts can be fully repatriated by NRO account holders, while the principal amount can be repatriated up to a specified limit.

NRE fixed deposit accounts

Non-resident Indians (NRIs) can transfer their overseas earnings into an NRE fixed deposit account. In this scenario, both the principal and the interest are fully repatriable.


Corporate Fixed Deposit

These fixed deposit schemes are offered by corporations aside from banks. Referred to as company FDs, investing in these instruments can sometimes yield higher returns.

Standard Fixed Deposit

Standard plans are straightforward investment schemes in which you deposit a fixed sum with a financial institution. Once the set maturity period ends, you are entitled to receive both the principal and the accrued interest from the investment.

Senior Citizen Fixed Deposit

People over 60 years old can also invest in fixed deposit instruments. Many plans designed for this age group provide flexible investment durations. Furthermore, senior citizens typically receive higher interest rates on their investments than those offered in standard schemes.

Tax-saving Fixed Deposit

If an investor's primary objective is tax savings, they can opt for tax-saving fixed deposits. These plans cap the annual deposit at Rs. 1.5 Lakh and come with a mandatory lock-in period of 5 years.

Cumulative Fixed Deposit

In these fixed deposit schemes, interest is compounded on a quarterly, semi-annual, or annual basis. Yet, the total interest accrued is only paid out at maturity. Choosing this type of FD can significantly enhance your investment corpus.

Non-cumulative Fixed Deposit

Interest from fixed deposits can be paid monthly, quarterly, or semi-annually, making this option ideal for investors seeking a steady income stream. This feature is particularly beneficial for retirees who rely on regular income from their investments.

Flexi Fixed Deposit Plans

In this arrangement, funds are transferred between a savings account and a fixed deposit account. To start investing in Flexi FDs, investors must link their fixed deposit account to their savings account. This type of FD plan offers high interest rates on deposits while providing liquidity.

NRO Fixed Deposit Accounts

Non-resident Indians (NRIs) can deposit their income earned in India into an NRO fixed deposit account. Interest accrued on these FD accounts can be fully repatriated by NRO account holders, while the principal amount can be repatriated up to a specified limit.

NRE fixed deposit accounts

Non-resident Indians (NRIs) can transfer their overseas earnings into an NRE fixed deposit account. In this scenario, both the principal and the interest are fully repatriable.

Key Considerations Before Applying for a Recurring Deposit:

1.) Term Period Options:

Recurring deposit term periods typically fall into three categories: Short-Term (6 months to 1 year), Medium-Term (more than 1 year to 5 years), and Long-Term (more than 5 years to 10 years). It's essential to assess the term period options before initiating an RD.

2.)Interest Rate Variations:

Before opening an RD account, it's prudent to examine the interest rates offered by different banks. Interest rates can vary based on the term periods provided by each bank.

3.) Premature Withdrawal Terms:

While most banks permit RD account openings, they also facilitate premature withdrawal options. In the event of early withdrawal, the payable interest is calculated based on the completed tenure, accompanied by a penalty charge imposed by the bank. Hence, it's advisable to select a bank offering competitive interest rates with minimal penalty charges for premature withdrawal.

Opening an Recurring Deposit Account 

Opening an RD Account: Online Method

  • Access your net banking account or app.

  • Select the option 'Open an e-RD account.'

  • Input the designated account number for installment debits, installment amount, duration, and review the applicable interest rate. Also, indicate the nominee for the account funds.

  • Confirm your agreement to the terms and conditions by checking the designated checkbox after reviewing the maturity amount.

  • Submit your application. Upon confirmation, a message will appear, and an RD receipt will be dispatched to your registered email address.

  • The specified amount will be debited accordingly.

Opening an RD Account: Offline Method

  • Visit the nearest branch of your bank where you hold a savings account.

  • Complete the RD application form, providing details such as installment amount, payment mode, deposit tenure, nominee information, and other relevant particulars.

  • Initiate the first installment payment via check or cash.

  • Your application will undergo processing within the bank's stipulated timeframe.

Varieties of Recurring Deposits

In addition to standard RDs designed to accrue interest income and augment your savings, there exist other RD variants tailored to suit diverse investor preferences.
Senior Citizen RDs:
Mirroring the features of regular RDs, this specialized scheme offers elevated interest rates to senior citizens. Interest is compounded quarterly, amplifying the potential for withdrawing a larger maturity sum, thereby aiding in addressing short-term financial requirements amidst a fixed income constraint.Typically, the incremental interest rates provided by various banks for senior citizen RD schemes range from 0.25% to 0.75% above standard deposit rates.
NRI RDs:
RD schemes present an optimal investment avenue for Non-Resident Indians (NRIs). By committing to modest recurring investments each month, NRIs can amass substantial returns. NRI individuals can opt for RDs via either NRE or NRO RD accounts.
Minor RD Accounts:
RD accounts can also be initiated in the names of minors under 18, subject to parental or guardian oversight. Similar to standard RDs, these accounts mandate a fixed monthly installment and tenure upon inception. In comparison to regular RDs, the returns may align closely or slightly surpass them.

Benefits of RD Investment

Opting to invest in an RD is a wise financial decision, given its nearly guaranteed returns on the principal amount and attractive interest rates. Here are some additional benefits of RD investments:

  1. Simplified Investment Product:

    RD stands out as one of the most straightforward financial instruments globally. Its investment concept is straightforward, making it an ideal choice for individuals new to financial investments. Initial forays into recurring deposits also foster disciplined investing habits.


  2. Assured Returns:

    Unlike equity and mutual funds, RDs provide assured returns on the principal amount within the short term.


  3. Flexible Tenure and Minimum Deposit:

    RD tenure typically spans from 6 months to 10 years, offering investors the flexibility to choose between short, medium, or long-term investments. Opening an RD account requires a minimum deposit, which varies across institutions. Public sector banks typically set it at Rs. 100, while private sector banks like ICICI or HDFC may require Rs. 500 to Rs. 1,000 initially.


  4. Anytime Withdrawal:

    RD accounts permit withdrawals at any time, albeit subject to a nominal fee imposed by the bank. This flexibility proves advantageous for depositors requiring urgent access to their funds and accrued returns.


  5. Loan Facility:

    Banks extend the option of availing loans against RD deposits, typically offering loan amounts equivalent to 90-95% of the total RD deposit, contingent upon the bank's policies.


  6. Flexible RD Schemes:

    Flexible RD schemes empower investors to deposit varying amounts (greater than the minimum stipulated) at their preferred intervals. Some banks even allow the option to skip installments without incurring penalties.

Renewals & Withdrawals of an RD

In the event of early closure of an RD for reinvestment in a term deposit, the account holder will receive interest without a reduction in the interest rate, subject to a 1% penalty.

This condition applies if the reinvested deposit remains with the bank for a duration longer than the remaining tenure of the initial deposit.

However, should the account holder opt to withdraw funds from the deposit before maturity, the earned interest rate will be based on the duration the funds remained with the bank, with a 1% penalty for early withdrawal.

If withdrawal occurs before maturity following reinvestment, a 1% penalty is imposed from the original contract date to the premature withdrawal date post-reinvestment.

Penalties are applied from the reinvestment date to the premature withdrawal date post-reinvestment if withdrawal occurs after the maturity due date of the deposit. Renewal and withdrawal policies for RDs vary among banks.

1.) Credit Score:

In the case of premature withdrawal from an RD, the interest rate applicable will correspond to the duration the deposit remained with the bank, with a 1% penalty levied by the bank. Interest rates offered vary according to individual bank regulations.

While some banks may reduce interest rates by 1% to 2% for the period of the deposit's tenure with the bank in the event of premature withdrawal, the minimum lock-in period for an RD account typically spans three months.

Withdrawal before this period results in zero interest earned, with only the principal amount refunded.

Furthermore, depositors forfeit incentives offered by the bank on the RD, in addition to interest penalties, in the event of premature withdrawal.

Partial Withdrawal of an RD:

2.) Most banks do not permit partial withdrawals from RDs. However, some offer alternatives such as loans or overdraft facilities secured by pledging the RD balance as collateral.

Premature withdrawal is allowed with a 1% penalty based on the duration the deposit remained with the bank. While some banks may impose penal interest rates (1-2%), others offer the option of partial withdrawal if the RD is held with a post office for at least one year, treating the withdrawn amount as a loan repayable in a lump sum.

For premature closures within a month, RD accounts do not accrue interest, with only the principal amount refunded.

Tax-Saving Recurring Deposit

The interest accrued by RD account holders is subject to taxation. The Tax Deducted at Source (TDS) amount is contingent upon the depositor's annual income. The following are the three income brackets and the corresponding applicable TDS rates:

For Annual Income Below Rs. 2.5 lakh:

If an individual earns less than Rs. 2.5 lakh annually, a TDS of 10% applies to the interest earned on the RD account if it exceeds Rs. 10,000. To exempt the interest from taxation, depositors can claim a TDS refund by submitting Form 15G to the income tax department.

For Annual Income Between Rs. 2.5 lakh and Rs. 5 Lakh:

Individuals with annual incomes ranging from Rs. 2.5 lakh to Rs. 5 lakh are subject to a 10% TDS on the total interest income earned from the RD account, provided it surpasses Rs. 10,000.

For Annual Income Between Rs. 5 Lakh and Rs. 10 Lakh:

Depositors earning between Rs. 5 lakh and Rs. 10 lakh annually face a 10% TDS on the RD account's total interest income exceeding Rs. 10,000. Additionally, they are liable to pay 20% income tax on their total income. Despite the bank deducting only 10% TDS, individuals must pay tax at a rate of 10.3% when filing their Income Tax Returns (ITR).

For Annual Income Above Rs. 10 Lakh:

Individuals earning over Rs. 10 lakh annually encounter a 10% TDS on the RD account's total interest income exceeding Rs. 10,000. Furthermore, those earning between Rs. 5 lakh and Rs. 10 lakh are subject to a 30% income tax rate on their total income. Although the bank deducts only 10% TDS, individuals must pay tax at a rate of 20.6% when filing their ITR.

Closing an Recurring Deposit Account:

To terminate an RD account, you can utilize one of the following methods, depending on your bank:

Offline - Visit your bank branch and submit a closure request for your RD account.

Net Banking - Access your bank's net banking platform and follow the necessary steps to close your RD account.

Mobile Banking - Utilize your bank's mobile application to log in and proceed with the steps to close your RD account.

In each of the scenarios outlined above, the closure proceeds will be credited to the same savings bank account from which the recurring deposit payments were being deducted.

1.) How can I close my RD account?

You can close your RD account either by visiting your bank branch, using net banking, or through the bank's mobile application.

2.) Where will the closure proceeds be deposited?

The closure proceeds will be credited to the same savings bank account from which the recurring deposit payments were deducted.

3.) Is it necessary to visit the bank branch to close the RD account?

No, you can also close your RD account using net banking or the bank's mobile application.

4.) Can I close my RD account online?

Yes, you can close your RD account online through net banking or the bank's mobile application.

5.) Will I receive the closure proceeds immediately?

The closure proceeds will be deposited into your savings account, usually within a few business days after the closure request is processed.

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