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  • Monthly Recurring Deposit

    A recurring deposit is a type of term deposit which allows people to save a fixed amount every month. Banks and the Post Office offer these schemes where people can contribute a small sum to build a fund, and also earn interest. This investment option works out well for salaried individuals. Generally, recurring deposits span over a period of 6 months to 10 years. A recurring deposit can be opened with as little as Rs. 10.

    Features and Benefits

    Interest

    The interest you earn on a recurring deposit depends on the amount you contribute and the tenure of the deposit. The rates of interest offered by banks is similar to the interest rates offered on term deposits.

    Tenure

    The tenures offered will differ between banks. Usually the minimum tenure is 6 months and the maximum tenure is 10 years.

    Maturity

    Upon maturity, the bank will pay you the sum you have saved plus interest accumulated. This money will either be paid in cash or be credited to your bank account. The maturity value of your deposit will be indicated when you open the RD account.

    Loan options

    Banks accept RDs as collateral to avail of loans. One can take a loan of 80% to 90% of the value of the deposit.

    Tax Deducted at Source

    Recurring Deposits recently were brought under taxable income. With effect from June 2015, tax deducted at source (TDS) is applicable on recurring deposits. If the interest on these deposits exceeds Rs. 10,000 per annum, then 10% would be deducted at source. The RD holder will also have to declare interest earned and pay income tax on this amount.

    Late Payments

    Banks levy a penalty if you miss the monthly deposit by the due date. There are some banks that waive this penalty.

    Premature Withdrawal

    Most RDs can be closed ahead of the maturity date. A penalty charge plus a penalty on the interest rate may be levied.

    How to open a Recurring Deposit

    Recurring deposits can be opened in two ways.

    • Approach your bank or the post office. You need to fill out a form and may be required to submit ID proof. You can then make the first deposit and open the account.
    • If your bank has internet banking facilities, you can log into your account and open the RD.

    How to fund a Recurring Deposit

    • You can visit your bank branch and make the payment by or on the due date.
    • You can set standing instructions to debit your bank account with the monthly amount on the due date.

    Who can open a Recurring Deposit

    Recurring Deposits can be opened by all.

    • Resident Indians
    • Hindu Undivided Families
    • Minors are eligible to apply under the guardian.
    • Sole proprietorships, Partnerships, Corporations, Trust, societies, clubs etc.
    • NRIs are also offered RD schemes.

    Documents Required for Recurring Deposits

    • 2 recent passport photographs
    • Duly filled and signed application form
    • KYC documents
    • Other documents as requested by the bank

    Tips

    • Find out the penalty charges for late payment. If there are charges levied, it is best not to miss a payment. This could reduce the interest you earn.
    • Taking a loan against your deposit should be done only if absolutely necessary. The interest you pay on the loan might be much more than what you earn. It might be more feasible to break the deposit. Research and find out which option would be better.
    • Opening RDs online are easy and convenient. The money will automatically be deducted from your savings or current account.
    • Setting standing instructions will ensure that you never miss a payment. But always ensure that your bank account is funded sufficiently.
    • View the interest chart before you open a recurring deposit. Banks offer different rates for different tenures. You can choose a tenure that gives you the best interest rate.
    • If your total income earned is less than the income tax bracket, you can fill in Form 15G to claim tax benefits on RDs. There will be no TDS on the deposit. Senior citizens can fill up Form 15 H.

    Read More Article on Recurring Deposit

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