Recurring Deposit is one of the most preferred investment schemes available in India. Risk averse investors looking for a promising investment scheme with good returns choose Recurring Deposit because it is simple and is a straightforward financial product. Read on to find more about the advantages of investing in a Recurring Deposit scheme in India.
What is a Recurring Deposit and How Does It Work?
In a recurring deposit scheme, the investor deposits a set amount every month over a predefined tenure which generally varies between one year to five years. The recurring deposit scheme has one major differentiating point when compared to fixed deposits - in a fixed deposit scheme, the investor has to deposit a lump sum once and leave it untouched for a period of time. So, people who do not have a lump sum or people who are looking to invest a set amount every month usually prefer Recurring Deposits. The principal amount deposited is returned at the end of tenure along with the interest. Normally, the interest is calculated on a quarterly compounding basis for recurring deposits.
How to Open a Recurring Deposit?
All major private and public banks in India offer Recurring Deposit products for their customers. Also, India Post offers a very popular recurring deposit scheme in the name of Post office Recurring Deposit scheme. Follow the steps given below to open a recurring deposit account.
- If you already have an account with the bank that you wish to open a Recurring Deposit with, you can contact the nearest bank branch or the bank’s customer service cell to open a recurring deposit account.
- If you wish to open a recurring deposit account in a bank with you do not have an account with, you will have to contact the nearest branch and submit an application form. Also, you will have to submit basic KYC documents to open an account.
- At the time of opening a recurring deposit account, the tenure as well as the monthly due amount (deposit amount) should be decided. Monthly payments for Recurring Deposits can be done online using ECS, online banking or fund transfer.
Advantages of Recurring Deposits
With banks offering an attractive interest rate for Recurring Deposit products, customers can gain the maximum out of their investments. Here are some of the advantages that come with Recurring Deposits.
- Useful for Planning Short Term Goals
Investing in a Recurring Deposit is completely risk free and gives guaranteed returns. Investing in Mutual Funds and Stocks might not be a safe option if you have short term investment goals. Because of this nature of RD, investors contemplating on short term goals in a time span of 1 to 3 years choose to involve in Recurring Deposit. Consider the situations given below, Recurring Deposit might just be the right financial product if you are planning to tackle short term situations that require financial assistance.
- Yearly education fee for your kids
- If you are employed, higher education costs
- If you own a home, furnishing and renovation costs
- Overseas vacation
- Managing marriage expenses
Online Recurring Deposit Features
With almost all popular banks offering online Recurring Deposit features, investing has just become easier. The customer can deposit money in Recurring Deposit account, close the RD account, open another RD, update information, view transactions, deposit details and do much more online. Think about making an investment and earning interest without even having to leave your home - investing in a Recurring Deposit is as easy as this.
Recurring Deposit Interest Rates
Recurring Deposit interest rates depend on the tenure and deposit amount. In most cases, the Recurring Deposit interest rate is very similar to that of fixed deposits. Interest rates for RD vary from 7.25% to 9% depending on the bank and the plan chosen by the customer. Also, many banks offer higher interest rates for senior citizens. You can also use a RD calculator to find how much interest you will accumulate for the deposit amount, interest rate and tenure.
Ease of Investment
In a Recurring Deposit scheme, the investor has to deposit a fixed sum every month which will build up a savings discipline. For salaried customers, it will be easier to set aside a particular amount every month as savings and for this, Recurring Deposit is the best option. Also, RD schemes come with guaranteed returns and the rate of interest for RD is locked in which will protect the investor from interest rate swings.
Flexible Recurring Deposit
Some banks offer flexible Recurring Deposit schemes where the investor will not be penalized if the amount is not deposited during a particular month. Also, in a flexible RD scheme, you will be able to withdraw the amount from your RD account anytime you want.
Disadvantages of Recurring Deposits
A financial product comes with benefits, but will always have some flaws. Let us take a look at certain things that may be slightly discouraging, when you are taking recurring deposit as your saving instrument:
- Liquidity: When you deposit the money in an RD, you will never have the privilege to withdraw any part of the money until the term of the deposit is over. Hence, if you are looking for an easy liquidity instrument, recurring deposits are an absolute bad idea. On the other hand, if you want to discipline your savings this disadvantage may work to your benefit.
- Rate of Interest: The interest rate that you earn on recurring deposit is much lower that regular fixed deposit schemes, since your deposits are being made in small installments and not as a whole chunk.
- Stringent Monthly Installments: It is not possible in the case of recurring deposits to be able to change your deposit amount, regardless of your financial situation at the moment. With a fixed amount for investment each month, someone with chances of extra or less funds for the deposit should be discouraged from opting for this product.