Recurring Deposit
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A recurring deposit is a type of term deposit offered by banks / financial institutes which assist people with regular incomes to deposit a fixed amount every month into their RD account and earn interest at the rate applicable.
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Recurring deposit (RD) allows customers an opportunity to build their savings via regular monthly deposits of a fixed sum over a fixed period of time.
Recurring deposit matures on a specific date in the future along with all the deposits made every month
It is similar to a fixed deposit of a certain amount in month-to-month installments.
The minimum tenure of this deposit is six months and maximum is ten years.
Compound interest is added to recurring deposit at the end of every financial quarter.
Rate of interest of 5% to 7.25% is offered on RD by various financial institutions.
M =R[{(1+i)^n} – 1] ÷ 1-{(1+i)^(-1/3)}
M = Maturity value of the RD
R = Monthly RD installment to be paid
n = Number of months (tenure)
i = Rate of Interest / 400
Let’s consider an example to understand this better,
You invest a principal amount of 500 for a period of 60 months at an interest rate of 6% and it is compounded quarterly.
M =R[{(1+i)^(n/3)} – 1] ÷ 1-{(1+i)^(-1/3)}
M =500[{(1+(6/400))^(60/3)} – 1] ÷ 1-{(1+(6/400))^(-1/3)}
M =500[{(1+(0.015))^(20)} – 1] ÷ 1-{(1+0.015)^(-1/3)}
M =500[{(1.015)^(20)} – 1] ÷ 1-{(1+0.015)^(-1/3)}
M= 35,031.78
Post Office Recurring Deposit
Maturity amount in this case at the end of 30 months will be 35,031.78.
Banks / Financial companies | Normal Interest Rates | Senior Citizen Interest | ||
less than 5 Years | More than 5 Years | less than 5 Years | More than 5 Years | |
State Bank of India | 5.30% | 5.80% | 5.40% | 6.20% |
AXIS Bank | 5.50% | 6.00% | 5.50% | 6.00% |
ICICI Bank | 5.35% | 5.85% | 5.50% | 6.30% |
HDFC Bank | 5.35% | 5.85% | 5.50% | 6.00% |
Union Bank of India | 5.45% | 5.95% | 5.45% | 5.95% |
IDBI Bank | 5.30% | 5.90% | 5.30% | 5.90% |
Kotak Mahindra Bank | 4.90% | 4.50% | 5.40% | 5.00% |
Yes Bank | 7.00% | 6.75% | 7.75% | 7.25% |
Federal Bank | 5.35% | 5.50% | 5.85% | 6.00% |
IndusInd Bank | 6.75% | 6.65% | 7.25% | 7.15% |
Punjab National Bank | 5.30% | 5.30% | 6.05% | 6.05% |
Bank of Baroda | 5.30% | 5.30% | 5.80% | 6.30% |
Bank of Maharashtra | 5.00% | 5.00% | 5.50% | 5.50% |
Indian Overseas Bank | 5.45% | 5.45% | 5.95% | 5.95% |
IDFC Bank | 6.75% | 6.25% | 7.25% | 6.75% |
Note: Please refer to the respective bank websites and confirm the interest rates before investing. The above chart is updated in August 2020.
High Interest rates.
Useful for short term goals.
A Flexible amount can be invested.
Loan on Recurring deposit
Penalty / Charges vary from bank to bank. However, it is observed that maximum of 2% of agreed upon interest rate is charged on premature withdrawing.
Please refer the below links for detailed chart on interest rates:
SBI – https://www.sbi.co.in/web/personal-banking/investments-deposits/deposits/recurring-deposit
Axis – https://www.axisbank.com/retail/calculators/recurring-deposit-calculator
ICICI – https://www.icicibank.com/Personal-Banking/account-deposit/recurring-deposits/index.page
HDFC – https://www.hdfcbank.com/personal/resources/rates
Union Bank – https://www.unionbankofindia.co.in/english/personal-recurring-deposit-scheme.aspx
IDBI Bank – https://www.idbibank.in/interest-rates.asp
Kotak Mahindra Bank – https://www.kotak.com/en/personal-banking/deposits/recurring-deposits/interest.html
Yes Bank – https://www.yesbank.in/personal-banking/yes-individual/deposits/recurring-deposit
Federal Bank – https://www.federalbank.co.in/deposit-rate
IndusInd Bank – https://www.indusind.com/in/en/personal/rates.html
Punjab National Bank – https://www.pnbindia.in/Interest-Rates-Deposit.html
Bank of baroda – https://www.bankofbaroda.in/interest-rates-charges.htm
Bank of Maharashtra – https://www.bankofmaharashtra.in/domestic_term_deposits
Indian OverSeas Bank – https://www.iob.in/Domestic_Rates
IDFC Bank – https://www.idfcfirstbank.com/content/dam/IDFCFirstBank/Interest-Rates/Interest-Rate-Retail.pdf
When it comes to making safe, regular investments, Recurring Deposits are one of the best options. Here’s all you need to know about them.
The choices in the types of savings instruments available to the public have risen manifold in recent years. However, one investment option that has stayed popular amongst people of all age groups is Recurring Deposit (RD). The main reason for this is that RDs are one of the safest investment instruments available. The following recurring deposit FAQ will resolve some of the most common queries about RD.
What is a Recurring Deposit?
This is a version of a ‘term deposit’ offered by Indian banks. It allows the investors to credit a fixed amount into their Recurring Deposit account on a monthly basis, and earn interest at a rate that varies between 5.25% and 9.50% for a tenure of one year.
The primary benefit of a recurring deposit over an FD is that you can commit to investing a fixed amount every month, whereas an FD relies on a lump sum payment, which many may not be in a position to do regularly.
How does an RD work?
Unlike Fixed Deposit, you can deposit a fixed sum with your Bank or Post Office for a pre-defined term every month. In return, you receive interest at a pre-defined rate, and at the end of the term, the invested capital along with accumulated interest is paid to you.
It is important to remember that, once you start an RD account, the deposit amount and term cannot be altered. Additionally, there are no weekly or quarterly deposit payment options.
What is the amount I can deposit in an RD every month?
Post Office Recurring Deposit
Most banks have a minimum deposit amount of Rs. 500, though it can even be as low as Rs. 100. You must also commit to making deposits in multiples of Rs. 500, though some banks may allow deposits in multiples of Rs. 100. It is best to check with your bank what their specific policies are in this regard.
Related:Understanding your savings account
How long is the term of an RD?
The minimum period for almost all RDs is 6 months, and this is extendable by multiples of 3 months up to a maximum permissible period of 10 years (120 months). The benefit that RDs offer is that you can define the length of the term. However, once fixed, that period will also serve as a ‘lock-in’ (usually 3 months) for your investment.
What is the interest rate paid on RDs?
This is one of the most common RD FAQ. The interest rate offered on RDs is directly correlated to the prime rate of the Reserve Bank of India (RBI) and is compounded and credited to the account on a quarterly basis. Rates currently range from 5.25% to 9%.
Senior citizens are eligible for an additional interest rate of 0.25% to 0.75% over and above standard interest rate offered by most banks. You must check this rate with your bank before opening an RD account.
Related:Short term investment options for high returns
Can I redeem my RD before the end of its term?
You can stop your deposits at any time and even redeem your investment when you want to. However, you could incur a small penalty (usually 1% of the interest earned) for cancelling your recurring deposit prematurely. This penalty will be defined at the time of opening the RD. However, the principal money invested is not affected under any circumstances.
Do RDs have a nominee/beneficiary facility?
Yes, all such deposits have a nominee or beneficiary assigned to the account. You can also change the nominee at any time by filling in the appropriate paperwork with your bank.
Can an RD be opened for a minor, or as a joint account?
Yes. You can open an RD account for a minor (child below 18 years) and even with someone else, as a joint account.
Recurring Deposit Interest Rates
Does a Recurring Deposit account offer benefits to senior citizens?
The primary benefit to senior citizens is an additional interest rate which varies from 0.25% to 0.75%. This rate is paid to those who have reached or crossed 60 years of age.
Related:Are you making the most of your savings account?
What happens if I delay the monthly deposit payment?
When you open an RD account, you are informed about the maturity value under the assumption that the monthly instalments will be deposited on the due date. A delay of even one day will mean that the interest penalty will apply for the whole month, or there could be a cash penalty that is a proportion of the monthly deposit. Either way, it affects your payout on maturity to some extent.
If you default on your monthly instalments frequently and have six outstanding instalments, some banks reserve the right to close the RD account. The interest rate payable will be as per the premature redemption aspect of the RD agreement.
Can I make partial withdrawals from my RD Account?
No, partial withdrawals are not allowed. Additionally, you cannot ask for periodic payouts of just the interest component. The interest will be paid when the account is either closed prematurely (subject to the early redemption penalty) or on maturity.
What other benefits can you avail of with an RD?
Most banks provide loans of up to 90% of the current deposit value. The interest charged on such loans is also lower than that of a personal loan – usually no more than 1% of the deposit rate the bank is paying on the RD.
This facility comes into its own if the investor requires cash for an emergency, especially since the RD continues to earn interest, and one does not have to pay the penalty for the premature withdrawal of the deposit.
Investors are eligible for tax exemption on Recurring Deposits only if they invest in an RD through India post, and in a 5-year scheme (at least). The maximum taxable deduction, under Section 80C of the Income Tax Act of 1961, is Rs. 1.5 lakh.
Who should invest in RD?
A Recurring Deposit is a good investment option for risk-averse investors as the product offers fixed returns with no risk. It is particularly suited for those who do not have a lump-sum to invest and would rather put money away on a regular basis. Recurring deposits are ideal for people who are looking to meet their short-term goals.
The answers to common queries recurring deposit should make it easier for you decide on the investment. Speak to your bank or local post office to understand the specifics of their service better.