Amongst many short-term investment plans, a recurring deposit is a low-risk investment option offering assured returns. Recurring deposits are one of the Best Savings Plans that offerflexibility in choosing the amount & the tenure of investment. It can be availed in a flexible tenure ranging between 6 months to 10 years, letting you create a short or long-term corpus. The minimum amount to start with the deposit is as low as INR 100 per month, according to your budget.
Features of Recurring Deposit
Provided are the salient features of a recurring deposit:
- Tenure
The recurring deposit tenure can range between 6 months & 10 years, hence offering flexibility.
- Minimum Deposit Amount
The minimum amount required to open an RD varies from bank to bank, i.e. it can be as low as INR 100.
- Withdrawal Restrictions
The restrictions on withdrawal vary from bank to bank. Hence, some banks do not allow a premature withdrawal of funds, & on the contrary, some banks allow it but at an added penalty cost.
- Standing Instructions
Provide standing instructions to your respective savings account for an automatic transfer deduction at a pre-specified date every month.
- Loan Facility
It also allows individuals to avail of loan facilities against recurring deposits, which can range up to 80-90% of the value of the deposit.
- Competitive Interest Rates
Recurring deposits offer a competitive rate of interest, i.e. they offer returns more than that of regular savings accounts.
Difference between a Recurring & Fixed Deposit
Provided are the key differences between a recurring & fixed deposit:
| Basis of Difference | Recurring Deposit | Fixed Deposit |
| Meaning | A fixed amount is deposited every month. | A lump sum amount is deposited for a fixed tenure. |
| Frequency | Monthly | One-time |
| Tenure | 6 months to 10 years | 7 days to 10 years |
| Payout | It can be monthly, quarterly, or annually | At the time of maturity |
| Minimum Amount | INR 10 | INR 100 |
| Auto-Renewal | Not Available | Available |
| Interest Rates | 3.5% – 8.5% | 3% – 7% |
| Default | In case the default continues for 6 months, the bank can avail their right to cancel the account. | As the complete amount is deposited initially, there is no scope of default. |
| Tax Saving | No option | Exempt from tax under section 80C of the Income Tax Act, 1961, maximum up to INR 1,50,000. |
| Calculation of Interest | Reducing Balance Method is applicable | Calculation is done on the principal amount. |
Eligibility Criteria
Provided are the eligibility parameters that are to be met to open a recurring deposit account:
- An individual can open a recurring deposit.
- Any minor less than 10 years of age can also open a recurring deposit under the guardianship of a natural or legal guardian.
- A proprietorship firm, organisation, or corporation is eligible to open a recurring deposit.
- A government company can also open a recurring deposit account.
Documents Required
Provided below is the list of documents required to be provided while opening a recurring deposit:
- Account Opening Form
- Address proof – Utility Bills, driving license, aadhar card, PAN, voter ID, etc.
- Identity Proof –Voter ID, Aadhar Card, PAN Card, Driving License.
Steps to Open a Recurring Deposit Account
- Online Application
Provided below are the steps to be followed to open a recurring deposit account online:
Step 1:Log in to the bank’s internet banking or mobile banking.
Step 2:On the dashboard, click the tab “Open an e-RD Account”.
Step 3:Mention the account number from which the instalment amount would be deducted.
Step 4:Mention the desired amount of instalment, along with the investment tenure.
Step 5:Evaluate the rate of interest & specify the nominee, if any.
Step 6:Accept the terms & conditions to ensure the desired maturity amount.
Step 7: You will receive a confirmation on the opening of your RD account.
- Offline Application
Provided below are the steps to be followed to open a recurring deposit account offline:
Step 1:The bank branch where you maintain your savings bank account should be visited.
Step 2:Fill out the recurring deposit application form with the required details, such as mode of payment, instalment amount, instalment tenure, details of the nominee, & any other details.
Step 3:The first instalment should be paid through cash or cheque.
Step 4:The application will be processed successfully by the bank representative.
How to Close a Recurring Deposit Account?
Provided below are the steps to close a recurring deposit account:
Step 1: Visit the bank branch where your RD account was opened.
Step 2: Fill out the required details in the Recurring deposit account closure form.
Step 3:Submit the filled form along with your ID proof for verification purposes.
Step 4:Once the verification is completed, the bank will process the account closure request.
Step 5:Once the request is approved, the amount gets transferred to the bank account linked with your savings account.
Factors to be considered before the opening of an RD account
If you want to open an RD as your Short term Investment, here are the factors that should be considered:
- Investment Tenure
RDs can be opened for a tenure ranging from 6 months to 10 years. One should choose the tenure, i.e. short or long-term, depending on the desired goals.
- Interest Rate
One can use an RD calculator to get an estimate of the earnings depending on the rate & tenure.
- Early Withdrawal Penalty
Banks do charge penalties in case funds are withdrawn before the maturity date.
- Deposit Frequency
Choose the frequency of deposit according to your budget, i.e. monthly, quarterly, or annually.
- Tax considerations
Interest received on recurring deposits is taxable.
Conclusion
Recurring deposits are best suited for those individuals who want to invest in small portions. They offer a competitive rate of interest & minimal documentation. They are of great help to attain short-term & long-term financial objectives. Hence, they serve as a hassle-free & safe investment choice, stimulating financial discipline.
