What Is a Recurring Deposit? How RD Works & Its Features

There are several ways in which an investor can invest to create wealth in the short and long term. A recurring deposit (RD) is a type of financial instrument that allows people to save money and earn interest on the savings. It requires you to make regular deposits over a predetermined period. This type of investment is becoming increasingly popular as it offers high returns with low risk.

In this article, we will discuss what is a recurring deposit, how it works, and its features in detail. With this information, you will gain an understanding of the basics of a recurring deposit and its potential benefits. So, if you are interested in learning more about how recurring deposit works, read on!

What is a Recurring Deposit (RD)?

Recurring deposit, the full form for RD, is a savings account that can be used as a tool for investment where you can make monthly investments and save your money over a time period.

Ideally, recurring deposits are more flexible than FDs, fixed deposits, since they are rigid and perfect for people who are looking to open a separate account for saving.

Learn in detail – FD vs. RD: Which Is The Best Savings Option For You?

Here are some main points you need to know about an RD:

Recurring Deposit (RD) savings
Interest Rate Anywhere between 2.5% to 8.5%
RD Minimum Monthly Amount ₹100
Maximum Monthly Deposit ₹1.5 Lakh
RD Minimum Tenure 6 months
RD Saving Maximum Tenure 10 years
Compounding Frequency Quarterly
Premature Withdrawal Allowed with penalty
Partial Withdrawal Not Allowed

 

How Does a Recurring Deposit Work?

Here’s how a recurring deposit works:

  • After opening a recurring deposit account, select the amount you want to deposit each month and the duration in which you want to deposit
  • You have to deposit the fixed amount every month on the fixed date for the decided tenure, which can be between six months to ten years
  • The interest you earned on your investment is calculated every quarter and is added to your deposited amount
  • Once the maturity period gets over, you will be given the deposit amount added along with the interest rate that’s earned over the tenure

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What are the Features of a Recurring Deposit Account?

Is an RD saving account perfect for your savings and investment needs? Learn about its features to analyse your decision better:

  • You can invest as little as ₹100 every month
  • The minimum deposit tenure starts from 6 months and ends at 10 years
  • The interest rate is compounded quarterly and is higher than a regular savings account
  • RD saving accounts have 30 days to three months lock-in period (depending on the bank), and any withdrawal within this period will not gain interest
  • You can open as many RD accounts as you like
  • Partial withdrawals are not allowed, but premature withdrawals are allowed, along with some penalties
  • Advance deposits may be allowed by some banks and the post office
  • You can make monthly payments instead of a lump sum deposit
  • An additional 0.5% interest rate may be given to senior citizens
  • Manual interaction is not required for deposits. You can automate deductions from your savings account to your RD account
  • Loan and overdraft facilities are available
  • An RD account can be opened for a minor under the supervision of a guardian or parent

FAQs

What is the minimum amount required for opening a recurring account?

You can open a recurring account with a minimum amount of ₹100.

What is the minimum tenure for RD?

You can open your recurring deposit account for a minimum period of six months.

Is the interest earned on your RD taxable?

Yes, like every savings account, even RD is subject to TDS (Tax Deducted at Source) of 10%. This TDS is applicable only when the interest you have earned is more than ₹10,000. If you don’t provide your PAN card details, you will be subjected to a TDS of 20%.

How much interest can you earn from a recurring account?

The interest you earn on your recurring deposit varies from bank to bank, but usually, it is between 2.5% to 8.5%.

Can you deposit different amounts in your RD saving account every month?

No, you cannot deposit different amounts every month in a regular RD saving account. The amount deposited is fixed when you open an RD account.

What is the penalty for a late deposit in your RD?

If you miss depositing the amount for a month, you have to pay a penalty of ₹1.50 for every ₹100.

What is the premature withdrawal penalty in a recurring deposit?

About 1% to 2% on the accrued interest portion is taken as a penalty by the bank or the financial institution for a premature withdrawal from your RD account.

 

Ready to make regular saving a habit? Open a recurring deposit (RD) account with Freosave and start building your wealth today!

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