If you’re wondering whether investing in a Recurring Deposit is the way to go, then we have 5 options for you to choose from.
One of the wisest pieces of advice you’ll get from your elders is to save money. This is a time-tested method that you’ll often see being put to good use by your parents and grandparents.
If you’re looking forward to take your saving goals a step ahead and utilise your funds to increase your cash flow, say hello to Recurring Deposit.
How does a Recurring Deposit (RD) account work?
A Recurring Deposit (RD) refers to a deposit wherein a fixed amount is deducted from the depositor’s bank account every month and added to his Recurring Deposit account.
The maturity date, monthly instalment, and rate of interest are pre-set at the time of opening the Recurring Deposit.
Generally, banks provide an interest rate equivalent to Fixed Deposits to its depositors for an RD account.
Additional Reading: Differences Between Fixed & Recurring Deposits
In other words, a Recurring Deposit is designed to help you prepare for the future. It lets you invest a fixed amount every month for a defined period. At the end of the pre-defined period, you are paid back a lump sum, which is made up of the principal and interest.
Additional Reading: Recurring Deposit: A Big YES Or A Giant NO?
This type of a plan is commonly used by those who earn a regular monthly income since a fixed sum is transferred periodically into the Recurring Deposit account of the deposit holder.
At the end of the tenure, the funds are typically withdrawn by the RD holder with accrued interest that is compounded quarterly.
If any installment is missed or delayed or if the depositor wants to withdraw his or her funds prior to maturity, then the interest payments towards the account are deducted as a penalty, which is generally specified when the account is opened.
Is a Recurring Deposit taxable?
Although banks never deduct TDS (Tax Deducted at Source) on the interest income earned by you on your Recurring Deposit, the interest from an RD is not tax-free.
Income tax is to be paid on interest earned from a Recurring Deposit according to the tax slab of the RD holder. You can pay the applicable tax at the time of filing your income tax return.
Additional Reading: Recurring Deposits and TDS
Who can invest in a Recurring Deposit?
Recurring Deposits are considered a safe investment and are suitable for those who want a fixed and pre-defined return on their investment.
The best thing about this type of deposit is that you need not invest a lump sum amount. You can start your saving with as little as Rs. 100 per month.
As the rate of interest on an RD is similar to Fixed Deposits, it is considered to be an effective savings tool.
Link your Recurring Deposit to your goals
The main advantage of Recurring Deposits is that you can link an RD with your short-term or long-term goals. As investing the right amount regularly helps you achieve your goals, you can pre-define your goals and set a time limit within which you want to achieve them.
Whether it is funding your children’s education or marriage, paying off an existing loan, purchasing a car through a Car Loan or a house through a Home Loan, getting a gift for your spouse, travelling abroad or any other goal, you can simply fix a target amount and then calculate the monthly installment amount required to achieve that financial goal.
The other factors that you need to consider before setting up the target amount are the time horizon, inflation, and prevailing interest rates.
With the help of an RD, you can invest comfortably in installments instead of a lump sum and regularly track how much closer you are to achieving your goal.
Additional Reading: Thinking About Breaking Your Recurring Deposit?
To help depositors with their investment decision, we have done some research on Recurring Deposits available in India and shortlisted the top 5 RDs based on the highest interest rate for two years.
We’ve listed them below along with their features. The depositors can pick the RD that best suits their requirements.
Recurring Deposit interest rates
|Bank||Deposit Tenure||ROI%||ROI For Senior Citizens (in %)||Other Details|
|Nainital Bank||1 year and above but up to 2 years||7.90||8.40||The deposit made per month starts from a minimum of Rs. 100. The minimum recurring deposit tenure is 12 months|
|Above 2 years but less than 3 years||7.75||8.25|
|3 years and above but less than 5 years||7.75||8.25|
|5 years and above up to 10 years||7.50||8.00|
|3 years and above but less than 5 years||7.75||8.25|
|Lakshmi Vilas Bank||1 year to 10 years||7||7||The amount to be deposited each month is as low as Rs. 100|
|Yes Bank||6 Months||7.00%||7.50%||The tenure for which a depositor can hold an RD with Yes Bank is 6-10 years|
|Above 2 years up to 10 Years||7.10%||7.60%|
|Union Bank of India||181 day to <10 months||6.95%||6.95%||Anyone can open this deposit for as low as Rs. 50 per month. The tenure is in the range of 6- 120 months|
|10 months to 14 months||7%||7%|
|>14 months to 3 years||6.8%|
|>3 years – 5 years||6.8%|
|>5 years – 10 years||6.8%|
|Corporation Bank||1 year to <3 years||6.60||The RD account can be opened for 12-120 months. The minimum monthly deposit is Rs. 100, but for the rural and semi urban branches it is only Rs. 50|
|3 years and above||6.50|
If you’re looking for RD interest rates for all banks, click here.
Disclaimer: The above mentioned RDs are not ranked in any particular order. It is suggested that the buyers/investors use their discretion before selecting any particular financial product.
Opening an RD account certainly makes financial sense as you will save a fixed amount periodically and will also earn a relatively higher amount on your interest compared to a Fixed Deposit. Seems like an effective savings plan, doesn’t it?