Everything You Need To Know About Recurring Deposit

Housing Finance

Despite being around for a while, recurring deposit (RD) accounts have still managed to remain popular. People of all ages are willing to place their trust in an RD account. Why are recurring deposit accounts so popular? Let’s look into it.

What is an RD account?

A regular deposit is known as a recurring deposit. This service, which is provided by many banks, enables clients to deposit funds regularly and earn decent returns. A depositor deposits a particular amount each month for a specified amount of time (typically ranging from 1 year to 5 years) into an RD account, which is defined as “a banking or postal service account”. 

This arrangement is for people who want to set aside a certain amount each month with the hope of earning a return in a few years. The procedure of generating tiny monthly deposits under the recurring deposit plan enables the consumer to accumulate an alluring amount at maturity, which can be determined using an RD calculator. The interest rates for recurring deposits are computed on a quarterly compounded basis.

Features of an RD account 

A recurring deposit account has the following essential characteristics: 

Fixed-income securities

A fixed-income investment has recurring payments. When it matures, it provides a definite return. The interest rate is known before the money is invested. Furthermore, the interest rates remain the same for the term of the deposit.

Minimum investment

Opening an RD account just requires a monthly investment of Rs. 100. Recurring deposits are perfect for you if you have a sizeable amount of extra money, like Rs 1,000 per month, that you can invest. 

High-interest rate 

The interest rates offered for recurrent contributions are higher than those offered by a traditional savings account. Banks normally compound interest once every 3 months.

Early withdrawal 

Customers are allowed to withdraw money prematurely under a recurring deposit; however, there will be a cost incurred.

Recurring Deposit: Eligibility Criteria 

The eligibility criteria for recurring deposits are as follows:

  • Any individual. 
  • Any minor who is older than 10 years old and can prove their identity is entitled to open the account. 
  • Any minor under the care of a natural or legal guardian who is younger than or equivalent to 10 years old. 
  • Any corporation, business, sole proprietorship, or commercial entity. 
  • Any agency of the government. 

Recurring Deposit: Documents Required 

The documents required to open a recurring deposit are as follows:

  • Form that must be completed and sent to the bank you choose to start your recurring deposit account with. 
  • Passport-size photos of the applicant. 
  • Proof of the applicant’s identity and proof of residence are required in order to start a recurring deposit account. 
  • If the bank asks for them, KYC documentation.

Procedure to open an RD account

By filling out the form at any bank or post office, you can open an RD account. The first month’s payment must then be made to the bank or post office along with extra formal documentation, such as a PAN card and proof of address. 

The shortest term for a recurring deposit account is 6 months and the longest term is 10 years. Multiples of 3 months can also be opened. Recurring deposit interest rates are comparable to fixed deposit interest rates. Similar to India Post, you will receive a senior citizen discount of 0.5 per cent on your interest rate, and certain banks will also grant you a 5-day buffer time.

You can open an RD account online with some institutions. You can use mobile banking to quickly and easily open an RD account. To open your recurring deposit account online, enter the bare minimum of information, including your name, email address, and mobile number.

Benefits of investing in a recurring deposit

Money put into a recurring deposit account is a wise investment because the principal is practically certain to yield a return. It also offers an appealing rate of return. The recurring deposit is, therefore, a wise investment choice. Other advantages of putting money in a recurring deposit account include the following: 

A straightforward financial asset to invest in

One of the easiest financial instruments to invest in is a recurring deposit. The idea of investing money in it is rather straightforward. Experts always recommend that anyone who is new to the world of financial investments invest their money in a recurring deposit account.

Guaranteed returns

Recurring deposits, as opposed to equity and mutual funds, guarantee returns on the principal amount deposited in the short term, which can be determined with the help of an RD calculator. 

Anytime withdrawal

Additionally, recurring deposit accounts allow for account withdrawals at any time. Even though the bank may charge a nominal fee for it, it is still a beneficial option for the depositor to have in the event that they urgently require both the deposited funds and their return. 

Loan against deposit

Additionally, banks offer the option of loans secured by recurrent deposits. Depending on the bank, a depositor may be eligible for a loan equal to 90–95% of the entire amount deposited in the recurring deposit account. 

RD Calculator 

Before determining the maturity amount that will be recovered by the depositor at the conclusion of the term period, an RD calculator takes the following factors into consideration. 

  • Principal amount deposited when the recurring deposit account was opened. 
  • Date that the account for recurring deposits was first opened. 
  • Interest rate in effect for the user-selected term length. 
  • Whether the user is a senior, because most banks offer senior people a higher rate of return for recurring deposit accounts.

Wrapping up

Recurring deposits are a great way to establish a dependable saving and investment habit. Numerous advantages come with recurring deposits. You can invest on a regular basis in little sums. Compared to savings accounts, the rate of return will be higher. Recurring deposits enable you to effortlessly achieve your short-term objectives. Learn more about deposit interest rates and open a recurring deposit account to take control of your investing habits. At Piramal Finance, you will also come across more information on recurring deposit calculators, also known as RD calculators.