What is Recurring Deposit ? RD Features and Benefits

What is Recurring Deposit

There is a wide range of saving schemes in the Indian market for those who are interested in keeping aside a part of their income as a saving. Savings are the best way to grow your surplus and enforce discipline among investors.

Recurring deposits is one of the most preferred investment schemes in today’s time, where you can save a fixed amount every month and build a fund along with earning interest on the same. This kind of investment option works very well for professionals and salaried individuals.

You can start your recurring deposit account with an investment of as low as Rs 10 per month. Even someone new to investing can start a recurring deposit account. Financial advisors always suggest investors to start saving their income through recurring deposit accounts.

Let us see what the benefits and features of a recurring deposit account are:

Fixed Interest Rate on Recurring Deposit:

The interest rate on the deposit amount is fixed right from the day you open a recurring deposit account. The interest you earn depends on the investment amount and the period of investment. The interest rates offered by the banks are similar to the ones offered in term deposit plans. A fixed interest rate lets you calculate the amount returned on maturity.

Also See: Difference Between RD, FD and SB

Recurring Deposit Tenure:

Banks offer different tenures for the recurring deposit account, ranging from a minimum tenure of six months and a maximum of ten years. However, the choice of tenure is entirely yours. Choose the term as per your short term and long term investment goals and financial needs.

Recurring Deposit Maturity:

Recurring deposits offer assured returns upon maturity, unlike other popular investment schemes like mutual funds and equity deposits that are primarily dependent on stock market performance. Recurring deposits give you fixed returns on the principal amount within a short period. The bank will also pay you the accumulated interest along with the principal amount. The mode of payment can be either in cash or direct account transfer as preferred by you.

Loan options on Recurring Deposit

Although you may not be allowed to withdraw funds from your recurring deposit account before maturity, most banks offer a loan of 80% to 90% on the total deposit balance. However, financial organizations may have different policies for granting loans against the recurring deposit account.

Tax Deducted at Source on Recurring Deposit:

Interest earned on the recurring deposit is tax-free until the total interest amount crosses Rs 10,000/- in one financial year. However, since June 2015, if the interest on recurring deposits exceeds Rs 10,000/- per annum, then 10% would be deducted as TDS.

The holder of the recurring deposit account will have to declare the interest earned and also pay income tax on the same amount. The depositor can claim relief from TDS provisions by submitting the Form 15G / 15H.

RD Savings and Tax break

Recurring deposit allows you to set long term goals as per your savings. You can easily calculate the exact amount of maturity and plan your financial needs. Even for short term requirements, it makes it easy as you can plan your travel, wedding, or plans of buying a new car, home, etc.

There is an option to start a recurring deposit for minors, which is very instrumental in saving for your child’s education expenses. You can plan the maturity just before the new academic year begins to fulfil the need for school fees.

Another benefit of recurring deposits is that senior citizens are allowed a deduction of Rs. 50,000 on interest earned on fixed deposits, saving accounts, and recurring deposits.

Recurring deposits are an attractive and safe option for the long term and short term investments to plan for your financial goals. Contact your nearest branch and get started with your investment plan at the earliest to reap the benefits of recurring deposits.

Also See: Difference Between RD, FD and SB