Little drops of water, make the mighty ocean, is an advice that most people follow when dealing with financials. A recurring deposit (RD) helps achieve the same and save small amounts regularly so that you can accumulate wealth over time.
RDs are term deposits, which requires you to invest a fixed amount each month. You earn the same interest as an FD. It’s just like investing a fixed amount each month in an FD. But RDs require you to have the same amount deposited every month before a particular date, which makes it an obligation even if you need the money for something else.
For those who want to save through an RD but may not have the same amount of disposable income every month, Flexi RD is the best option. It works just like a normal RD, but you can choose when and how much to invest. So it’s literally like a piggybank where you put your money as and when you have it.
How Does A Flexible RD Work?
A Flexible RD has 2 components:
- Core amount
- Flexible amount
The core amount is the money you deposit when opening the Flexi RD. It is compulsory to open a Flexi RD. The core amount changes depending on the bank where you open the Flexi RD, but most banks in India require the core amount to be a minimum of Rs 500.
You can invest the flexible amount any time you want, depending on when you have the money. This amount can be incremented in specific multiples, but there’s a cap on the amount that can be invested. You earn interest on the flexible amount quarterly the rate for which is decided annually. You can invest the money at any time within the month, with no penalty.
How To Open A Flexi RD?
If your bank offers the flexible recurring deposit, you can go to the branch and request them to start on your behalf or invest online using the internet banking facility. You must hold a Savings Bank Account in the said bank to open this RD.
To open a Felxi RD online you can follow the steps below
- Login to the requisite RD section on your net banking page
- You may be asked to define a goal like buying a car or a laptop or funding a holiday
- Set the goal amount with the tenure
- Make an initial contribution and your flexi RD has been set up
- You may be required to do an e-KYC for opening an RD online by some banks
It is not necessary that you reach your exact goal as stated, as you have the liberty to deposit the money when you want. Also, you can set up as many Flexi RDs depending on the particular goals you are chasing.
You can deposit extra money at any time, like when you get a bonus or your previous investments mature. You can now continue to visualize the financial goal set by you and track the progress towards achieving it.
Things To Know Before Investing in a Flexi RD
- Most banks allow you to deposit any amount at any point within the tenure of the deposit, while others have a minimum and maximum amount
- Theirs is generally no penalty for late deposits and pre-closure of the Flexi RD but do check with the bank as some may have pre-closure charges attached
- You can avail a loan against Flexi RD from the said bank, the amount for which varies from bank to bank but some give up to 90% of the available balance as a loan
- Many banks offer the facility of investing in a Flexi RD with tenure ranging from 6 months to 10 years
- Some banks even allow minors to open a Flexi RD under the supervision of a parent/guardian.
- Senior citizens can also invest in a Flexi RD and are offered higher interest
Tax Implications
Just like on interest earned on FDs, Tax Deducted at Source (TDS ) is applicable on RDs as well. If interest earned on recurring deposits exceeds Rs 10,000 a year, TDS at the rate of 10% would be deducted by the bank. Tax is calculated on interest earned from the RD at the rate of tax slab of the account holder.
You can avoid the TDS on your flexi RDs by submitting Form 15H/15G or Exemption Certificate under Section 197 or any other applicable Tax Exemption Certificate with the bank.
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