# Here’s All You Need to Know about Recurring Deposits

Recurring deposits are unique term deposits that allow individuals to deposit regular amounts monthly and acquire the benefits on maturity. Unlike fixed deposit accounts that require a lump sum deposit, RD accounts instil financial discipline.

These accounts help make uniform savings that earn decent interest. Individuals can avail of RD facility across all Indian banks with terms ranging from 6 months to 10 years. However, the interest rate for the entire term remains constant irrespective of the term depositors choose.

## Significant Features of RD

Some salient features of RD accounts are as follows:

• The minimum amount to invest varies across different banks. Typically, individuals can begin investing in RD schemes with as little as Rs. 1,000.

• Compared to savings accounts, recurring deposit interest rates are higher and close to fixed deposit accounts.

• Individuals can make deposits for a minimum of 6 months to 10 years with no provision for premature withdrawals. However, some banks may allow early closure of the RD account, but it is conditional.

• Some banks accept standing instructions to credit one’s RD account periodically from their savings or current account. However, there are certain limitations, depending on the bank’s RD policies.

• Like any other investment option, recurring deposit accounts attract taxes; their returns are subject to a 10% TDS deduction.

## Recurring Deposit Calculator

Generally, interest on recurring deposits is compounded every quarter. Potential investors may find it challenging to incorporate all the variables involved in determining the return on investment in RD schemes. To eliminate the hassle of calculating returns manually, investors can utilise an RD calculator.

This easy-to-use online tool helps investors plan their future finances with precision.

A typical recurring deposit formula for calculating the maturity amount is given as follows:

`Maturity amount = R [(1+i)^n-1]/ [1-(1+i)^(-1/3)]`
`Where,R = monthly instalment n = number of quarters (4 in one year) i = interest rate/400`

Ms. Purbi wishes to invest in an RD scheme for two years with Rs as a working professional. 10,000 monthly. The table below calculates her maturity amount after two years, assuming a 5% interest rate.

 Monthly investment (R) Rs. 10,000 Number of quarters (n) 8 Interest rate (i) 5% Matured amount (after 2 years) Rs. 2,52,853

## Benefits of Investing in Recurring Deposit

RD schemes are ideal for individuals looking to save and invest without any risks involved. There are numerous benefits of investing in RD accounts. They include the following:

• RD accounts can act as collateral for loans. As a result, potential investors can procure loan amounts of up to 80-90% of the deposit amount.

• Investors can prematurely withdraw their invested amount subject to payment of a penalty.

• RD schemes have flexible investment options for both minors and senior citizens. Minors can open these accounts under the guardianship of their parents. Senior citizens can avail higher interest rates (generally 0.5% more) for RD accounts.

### Recurring Deposit Interest Rate – Overview

RD Interest Rate ranging from 2.50% – 8.50% by opening an RD account. The Minimum tenure for a fixed deposit ranges from 6 Months to 10 years.

 Particulars Details Interest Rate Range from 2.50% to 8.50% Minimum Deposit Amount Starts from Rs. 10 (for post office RD) Tenure of the Investment 6 months to 10 years Interest Compound Frequency Quarterly Partial and Midterm Withdrawal Not Allowed Premature Closure Allowed with penalty

Final Word

Recurring deposits are a convenient and straightforward approach to begin investing. For risk-averse individuals, an RD scheme is a fairly decent option, which can help them fulfil their investment objectives.

• #### Are fixed deposit accounts better than recurring deposit schemes?

Fixed deposit accounts involve investing a lump sum amount for a certain period. Compared to RD interest rates in banks, fixed deposit interest rates can yield relatively high returns. Unlike FDs, RD accounts allow investors to invest small amounts every month. Thus, it all depends on how investors wish to support it.

• #### Are RDs eligible for tax deduction under section 80C?

Unlike tax-saving fixed deposits, national savings certificates, or ELSS, RDs are not eligible for a tax deduction.

• #### Is it more profitable to invest in SIPs than recurring deposit schemes?

It depends on the investor’s period of investment. Experts believe that the RD scheme is a better option for an investment span of 12-18 months than SIP Investments. That said, it also depends on the type of fund. Debt funds, for example, may yield a similar return to RD. However, for investments spanning more than 24 months, an equity-oriented mutual fund has the potential to be a far better option as it might yield a much higher return.

• #### Can school kids open an RD account?

Banks enable minors to open and operate recurring deposit accounts under the guardianship of their parents. It helps them learn and understand finances. Moreover, it also encourages them to start saving early.

• #### How to open an RD account?

Individuals should approach any bank in India and submit the duly signed account opening form and the first deposit amount. The bank will provide a passbook for the same. If the individual does not have a savings account in that bank, they should submit personal documents. Investors can choose a bank that provides the best RD interest rates.

#### Interested in how we think about the markets?

Read more: Zen And The Art Of Investing