A Recurring Deposit or RD as it is commonly called is a unique term deposit offered by banks. It is an investment tool which permits those with an ability to make regular deposits earn decent returns on their investment. Basically consisting of regular deposits and an interest component, a Recurring Deposits provides flexibility and ease of use to individuals. Account holders can choose to invest a particular amount each month, ensuring that they have sufficient income for an emergency, with the RD earning decent interest on the amount. Given the fact that FDs are rigid and are not ideal for short terms, a Recurring Deposit is an ideal investment cum savings option.
Almost all major banks in India offer a Recurring Deposit Account, with the term typically ranging between 6 months and 10 years, providing individuals an opportunity to choose a term as per their needs. Competition among banks to attract new customers has ensured that interest rates are competitive, helping an investor earn a good amount on maturity. The interest rate, once determined, does not change during the tenure, with the Reserve Bank of India ensuring that strict guidelines are followed. On maturity, the individual will be paid a lumpsum amount which includes the regular, periodic investments and the interest earned on them.
Best Banks to Open a Recurring Deposit Account
A number of banks in India offer customers the facility to open a recurring deposit account.
The RD Interest Rates for regular citizens for the top banks are as follows:
|Name of the Bank||Tenure||Regular RD Interest Rates (p.a)|
|HDFC Bank||6 months to 10 years||6.25%-7.25%|
|SBI||1 year to 10 years||6.70% -6.85%|
|ICICI Bank||6 months to 10 years||6.00%-7.25%|
|Bandhan Bank||6 months to 10 years||6.40%-7.10%|
|Canara Bank||6 months to 10 years||6.35%-7.00%|
The RD Interest Rates for senior citizens for top banks are:
|Name of the Bank||Tenure||Senior Citizen RD Interest Rates (p.a)|
|HDFC Bank||6 months to 10 years||6.50%-7.75%|
|SBI||1 year to 10 years||7.20% -7.35%|
|ICICI Bank||6 months to 10 years||6.50%-7.75%|
|Bandhan Bank||6 months to 10 years||7.15%-7.85%|
|Canara Bank||6 months to 10 years||6.85%-7.50%|
*The above interest rates are for investments less than Rs.1 crore
Features of Recurring Deposit
RD offers you a fixed interest on the invested amount at a specific frequency till the pre-determined term or up on maturity. At the end of the term, the amount upon maturity(which is your invested capital) along with remaining or accumulated interest is paid.
The main features of Recurring Deposit account are as follows:
Recurring Deposit schemes aim to inculcate a regular habit of saving among the public.
Minimum amount that can be deposited varies from bank to bank. It can be an amount as small as Rs.10.
The minimum period of deposit starts at six months and the maximum period of deposit is ten years.
The rate of interest is equal to that offered for a Fixed Deposit and is hence higher than any other Savings scheme.
Premature and mid term withdrawals are not allowed. However, the bank may allow to close the account before the maturity period, sometimes with a penalty for premature withdrawal.
- RD offers the additional benefit of taking loan against the deposit, i.e., by using the deposit as a collateral. About 80 to 90% of the deposit value can be given as loan to the account holder.
- The Recurring Deposit can be funded periodically through Standing Instructions which are the instructions given by the customer to the bank to credit the Recurring Deposit account every month from his/her Savings or Current account.
3 Important Factors to Check Before Applying for RD
Recurring deposit is an investment product that is made available by banks. The principal amount invested earns interest at regular intervals and the lump sum is handed over to the depositor at the time of maturity. Although recurring deposit is a safe investment option and the return on investment is mostly guaranteed, there are some factors any person should consider before investing money in a recurring deposit account.
- Interest Rate Offered by the Recurring Deposit Account: The interest rate offered by banks on different term periods varies from bank to bank. The interest rate offered by different banks to a recurring deposit account holder generally ranges from 3.5% to 8.5% p.a. The rates of return vary depending on the tenure of the deposit selected. For medium-term deposits, the rates are generally the highest. For long-term deposits, the rates are usually slightly lower as the deposit holder stands to gain a higher amount of interest overall.
- Term Period of the Recurring Deposit Account: The term periods are divided into three categories:
- Short-Term Tenure: A short-term tenure usually lasts from 6 months to a year.
- Medium-Term Tenure: A medium-term tenure usually lasts from more than a year to 5 years.
- Long-Term Tenure: A long-term tenure lasts from more than 5 years to 10 years.
A method of earning on the capital invested in a recurring deposit account is to invest in the term period that provides a high rate of interest with the term period being as short as possible.
- Facility of Premature Withdrawal in the Recurring Deposit Account: All banks that offer the facility of opening a recurring deposit account also provide the option of premature withdrawal with it. The interest payable will be calculated based on how much of the tenure is completed. A premature withdrawal penalty will also be charged by the bank. Therefore, while investing in a recurring deposit account, choose such a bank that offers high rate of interest and charges a low fee on premature withdrawal.
Recurring Deposit: Eligibility Criteria
- Any individual.
- Any minor who is above 10 years of age is eligible to open a recurring deposit account if he or she provides proof of the name.
- Any minor who is below or equal to 10 years of age under the guardianship of natural or legal guardian.
- Any corporate, company, proprietorship or commercial organisation.
- Any government organisation.
Recurring Deposit: Documents Required
- Application form which can be obtained from the bank you select to open the recurring deposit account in.
- Passport size photographs of the applicant.
- Identity proof and address proof of the applicant willing to open the recurring deposit account.
- KYC documents if the bank requests for it.
Recurring Deposit Formula
The formula to calculate the interest that can be availed by the depositor at the end of the maturity period for a recurring deposit account is as follows:
‘I’ is the interest rate that is to be calculated via the formula.
‘n’ is the number of months.
‘r’ is the rate of interest per annum.
‘P’ is the principal amount.
The formula to calculate the maturity amount is
M = P(n)+I
M is the maturity amount received by the depositor from the recurring deposit account at the end of the maturity period.
P(n) is the principal amount deposited.
I is the interest received by the depositor on the recurring deposit account.
Renewals and Withdrawals of Recurring Deposits
During premature closure of a Recurring Deposit for reinvestment in a term deposit, interest will be paid to the account holder without reducing interest rate by 1% as penalty. This happens only if the deposit after reinvestment, remains with the bank for a period longer than the remaining period of the original deposit. However, if the account holder withdraws the deposited amount before its maturity, the rate of interest that he/she will receive shall be the one applicable to the period for which the deposit has remained with the bank, with a one per cent penalty for premature withdrawal. If after reinvestment the deposit is withdrawn before the maturity period, the penalty of one per cent will be levied from the date of original contract up to the date of premature withdrawal after reinvestment. If the premature withdrawal is made after the due date of maturity of the deposit, then the penalty is levied from the date of reinvestment to the date of premature withdrawal after reinvestment. Terms and conditions about renewal and withdrawal of Recurring Deposits vary from bank to bank.
Premature Withdrawal of Recurring Deposit
- If the account holder withdraws the deposited amount before its maturity, the rate of interest that is received will be the one applicable to the period for which the deposit has remained with the bank. 1% penalty will also be levied by the bank for premature withdrawal.
- The interest rate offered by banks vary as per bank stipulations.
- However, some banks would deduct interest rate by 1% to 2% for the period during which the deposit remained in the bank in case of premature withdrawal.
- Usually, the minimum lock-in period for an RD account is 3 months. If a premature withdrawal is made before this period, the account holder would earn zero interest and only the principal amount that was deposited would be refunded to him/her by the bank.
- In addition to penalty on interest, the depositor is not eligible for incentives offered by the bank on the recurring deposit.
Partial Withdrawal of Recurring Deposit
- Partial withdrawal of RD is not allowed by banks. While most banks do not allow partial withdrawal, some banks do offer an alternative in the form of Loan or Overdraft facility which is made available by pledging the balance in RD account as collateral.
- Also, premature withdrawal is allowed at 1% penalty, for the period during which the deposit has remained with the Bank.
- Premature closure is allowed but with some penalty. While no bank allows you to make partial withdrawals, you can do so if you have a Recurring Deposit with a post office for at least a year. In fact, the withdrawn amount is considered a loan, which you can repay as a lump sum.
- You can withdraw prematurely, but the interest paid will be lower than the base rate for the deposit tenure or that for the tenure the deposit has been with the bank. Some banks may subject the deposit to a penal interest (1-2 per cent).
- A Recurring Deposit account has a lock-in period of one month. Premature closure in less than a month will not earn interest. Only the principal amount will be returned.
Tax Saving Recurring Deposit
The interest earned by the depositor on a recurring deposit account is taxable. The amount of Tax Deductible at Source (TDS) is dependent on the income per annum of the depositor. The three different income slabs and the applicable TDS on it are:
- For Annual Income of Less than Rs.2.5 Lakh: For people earning less than Rs. 2.5 Lakh per annum, the TDS applicable is 10% of the interest earned on the recurring deposit account if the interest earned on the principal amount exceeds Rs.10,000. To avoid any payment of tax on the interest, it can be done so by claiming refund of the TDS deducted. This can be done by submitting Form 15G to the income tax department.
- For Annual Income between Rs.2.5 Lakh and Rs.5 Lakh: For people earning an annual income ranging between Rs.2.5 Lakh to Rs.5 Lakh, the TDS applicable is 10% of the total income earned as interest on the principal amount in the recurring deposit account although it should exceed Rs.10,000.
- For Annual Income between Rs.5 Lakh and Rs.10 Lakh: For people earning an annual income ranging between Rs.2.5 Lakh to Rs.5 Lakh, the TDS applicable is 10% of the total income earned as interest on the principal amount in the recurring deposit account although it should exceed Rs.10,000. The income tax to be paid by the person earning an annual income between Rs.5 Lakh and Rs.10 Lakh is 20% of the total income. The bank will deduct only 10% TDS which means when the person files the ITR, tax has to be paid at the rate of 10.3%.
- For Annual Income between more than Rs.10 Lakh: For people earning an annual income ranging between Rs.2.5 Lakh to Rs.5 Lakh, the TDS applicable is 10% of the total income earned as interest on the principal amount in the recurring deposit account although it should exceed Rs.10,000. The income tax to be paid by the person earning an annual income between Rs.5 Lakh and Rs.10 Lakh is 30% of the total income. The bank will deduct only 10% TDS which means when the person files the ITR, tax has to be paid at the rate of 20.6%.
Read on to know more about Income Tax on RD Rates
Recurring Deposit Calculator
A recurring deposit calculator takes the following parameters into account before calculating the maturity amount that will be collected by the depositor at the end of the term period.
- Principal amount deposited at the time of opening the recurring deposit account.
- Date on which the recurring deposit account was opened.
- Interest rate applicable for the term period selected by the user.
- Whether the user is a senior citizen or not as most banks provide a higher rate of return for senior citizens for a recurring deposit account.
Benefits of Investing in Recurring Deposit
Investing money in a recurring deposit account is a shrewd investment as the principal amount invested is almost guaranteed to give a return. The rate of return offered on it is also attractive. All this makes the recurring deposit a smart investment option.
Some of the other benefits of investing money in a recurring deposit account are:
- A simple financial product to invest in: A recurring deposit is one of the simplest financial products in the world to invest in. The concept of investing money in it is pretty simple. For any person who is new to the world of financial investment, experts always advise the person to invest their money in a recurring deposit account. Initial investments in recurring deposit also develops good investing habits for the individual.
- Guaranteed returns: Unlike equity and mutual funds, recurring deposits offer guaranteed returns on the principal amount invested in the short term.
- Tenure and minimum amount to be deposited: The tenure of a recurring deposit account usually varies from 6 months to 10 years. The depositor can select the short-term, medium-term or long-term period for investment in a recurring deposit account. Also the minimum amount to be deposited to open an RD account is Rs.100 for public sector banks and varies from Rs.500 to Rs.1,000 for private sector banks such as ICICI or HDFC bank which is not a huge amount to deposit at the beginning.
- Anytime withdrawal: Recurring deposit accounts also offer the facility of withdrawal of the account anytime. The bank might charge a small fee for it but it is still a good option for the depositor to have in case he or she needs the deposited money along with the return on it urgently.
- Loan against deposit: Banks also provide the facility of loan against recurring deposits. A depositor can avail a loan amount equivalent to 90-95% of the total money deposited in the recurring deposit account depending on the bank.
- Flexible recurring deposits: Another advantage of investing money in a recurring deposit account is flexibility. A flexible recurring deposit is a scheme in which a person can invest any amount of money (greater than the minimum amount) at any intervals of time. Some banks also allow the facility for the depositor to skip an installment without paying any penalties
Recurring Deposits for NRI/NRE
One of the best investment options for NRIs/NREs is a recurring deposit account. Huge savings can be made using small monthly investments. NRIs can either invest in either NRO or NRE Recurring Deposit accounts.
- NRE RD Accounts: In this savings option, the investments towards deposit installments are credited from the NRE accounts. An NRE is a non-resident external account, where the accrued is exempted from taxes in India. This account can also be moved back to the investor’s home country, without any hassle.
- NRO RD Accounts: For these accounts, the investments towards the deposit installments can come either from NRE or NRO accounts. NRO are non-resident ordinary accounts. The interest from NRO RDs is taxable at a rate of 30%, plus the additional CESS. This is repatriable, subject to certain featured requisites.
Read on to find more about NRI/NRE Recurring Deposit
Senior Citizens Recurring Deposit
A recurring deposit account enables an individual to deposit fixed amount every month for a pre-defined period which earns interest similar to Fixed Deposits (FD). RDs can be availed by senior citizens as well. The interest rates for senior citizens deposits are higher than the regular account. For this, the minimum amount and tenure are fixed by the bank. The interest on RD is compounded on quarterly basis. Most banks offer senior citizens an additional interest rate of 0.25% to 0.75%, as compared to regular recurring deposits.
Read on to know more about RD On Senior Citizens
Banks Providing Flexi RD
Flexi Recurring Deposit schemes are a type of Recurring Deposit that allow the depositor to invest a flexible sum of money depending on his convenience. They allow the depositor to choose the core investment amount as well as the flexible installments in multiples of the core installment amount. For example, if the depositor chooses Rs. 500 as the core amount, he can choose to make a deposit of Rs. 500 or its multiples for his next deposit.
This scheme offers depositors a choice on how much to invest depending on their means every month, while maintaining a stable interest rate. The interest rate payable is fixed for the core amount while the interest on the core multiples amount would be calculated based on the duration of the investment.
There are a number of banks that offer flexi Recurring Deposit schemes with varying tenures and conditions.
Read on to know more about Different Bank's Flexi RD
Recurring Deposit Tips
Recurring deposit is one of the simplest and easiest financial products to invest in. Usually the experts advise the depositor to invest in short-term tenure that has an attractive interest rate to offer.
FAQs on Recurring Deposit
- Is interest earned on recurring deposit taxable?
Yes, the interest earned recurring deposit is taxable.
- Is Tax Deduction at Source (TDS) applicable on the interest earned on Recurring Deposits?
Yes, TDS of 10% is applicable on the interest earned on Recurring Deposits. The TDS will deducted if the interest earned on the Recurring Deposits is more than Rs.10,000.
- What is the minimum tenure for Recurring Deposit?
The minimum tenure for Recurring Deposit (RD) differs from bank to bank. Most banks offer RD schemes for a minimum tenure of 6 months or 12 months.
- How much interest can I earn through a Recurring Deposit account?
The interest rate for Recurring Deposit differs from bank to bank. The amount of interest that you can earn depends on the amount you have deposited in the RD account, the tenure of the RD and the interest rate offered by your bank for that tenure.
- What is the minimum amount required for opening a Recurring Deposit account?
The minimum amount required for opening a Recurring Deposit account varies for every bank and it can be as low as Rs.10
- Who can open a Recurring Deposit (RD) account?
Anyone can open a Recurring Deposit (RD) account. Some banks allow people to open a joint RD account and people can also open this account in the name of their minor child.
- How do banks calculate the maturity amount?
The maturity amount is calculated by banks on the basis of the instalment, account type and tenure chosen by the depositors.
- Do Senior citizens receive extra benefits on their Recurring Deposits?
Yes, generally banks in India provide an additional interest rate on Recurring Deposits to senior citizens.
- Can I withdraw my Recurring Deposit before the term is over?
Yes, you can withdraw your Recurring Deposit before the term is over. However, banks generally do not permit partial withdrawal.
- Can I add nominees in my Recurring Deposit account?
Yes, you can add nominees in your Recurring Deposit account.
- How can a depositor withdraw the principal amount deposited before its maturity in a recurring deposit account?
A depositor can submit an application to the bank requesting premature withdrawal of the recurring deposit account. The return on the principal amount invested by the depositor will only be provided for the period the money was deposited in the recurring deposit account in the bank. The interest rate will also be applicable for the same term period.
- Can tax be saved on recurring deposits?
Yes, tax can be saved on recurring deposits if the money is deposited for a medium-term or long-term tenure in the recurring deposit account.