A Recurring Deposit (RD) is a form of a term deposit which allows you to deposit a fixed amount on a regular basis and enjoy the same higher interest rate as a fixed deposit. The difference is that a recurring deposit allows you to make periodic investments in the deposit, whereas in a Fixed Deposit (FD), the customer deposits the entire amount at the time of opening the FD account. An RD is a way to encourage saving among individuals who may not be able to spare a lump sum to open an FD, but prefer to invest smaller amounts on an ongoing periodic basis.
You can deposit the money in an RD with a standing order with your bank so that your savings account is automatically debited for the pre-determined amount and credited to your recurring deposit on a monthly basis. You are credited with the entire amount (principal plus interest) on maturity of the deposit.
Features of a Recurring Deposit:
The interest rates on recurring deposits can vary according to each bank. However, once you open an RD, the rate remains the same for the entire period of the deposit. Check the interest rate offered by your bank to see if it is competitive compared to other banks. In general, the recurring deposit interest rates are the same as the FD rates and can range from 6%-9% depending on the individual bank.
While the interest rate is the same for the period of the recurring deposit, compounding is done on a quarterly basis.
Senior citizens can enjoy a higher interest rate on RDs.
Most banks have an online calculator which helps you calculate the amount you will earn as interest on your RD.
Period and amount
Period: The minimum period for an RD is generally 6 months though some banks can have a minimum period of 2 years. The maximum period for a recurring deposit is 10 years.
Amount: The minimum amount to be deposited on the periodic basis also depends on the bank.
Some banks may allow you to make a premature withdrawal subject to specific terms and conditions and after paying a penalty fee. Banks do not, in general, allow partial withdrawal, but offer it in the form of an overdraft or loan facility, with the balance in the RD being held as collateral.
Loan against deposit
Banks can offer up to 80-90% of the amount in your RD as a loan, using your deposit as collateral.
In addition to resident Indians, some banks also allow minors to have an RD account under the supervision of a guardian.
As of 2015, interest accrued on an RD is subject to TDS (Tax Deducted at Source).