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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.

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

    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.

    the deposit. Senior citizens can fill up Form 15 H.

Monthly Recurring Deposit FAQs

  1. Is the interest on my recurring deposit compounded on a monthly basis?
  2. The interest on your deposit will be compounded on quarterly basis. A recurring deposit scheme will allow you to build on your savings while you deposit money on a monthly basis into the account. This will be done over a fixed period of time.

  3. Will the interest that I earn on my recurring deposit be taxable?
  4. Yes, the interest amount that you earn on the recurring deposit will be taxable.

  5. Do I need to pay any penalty for a premature withdrawal of a recurring deposit?
  6. Yes, the penalty to be paid for a premature withdrawal will vary from one bank to another.

  7. Am I allowed to withdraw my recurring deposit before its maturity?
  8. Yes, you can always withdraw your recurring deposit before its maturity. However, you will have to pay a penalty.

  9. If I am an NRI, can I open a recurring deposit account in India?
  10. Yes, NRIs are allowed to open a recurring deposit in India.

Monthly Recurring Deposit News

  • Bajaj Finance Limited offers Systematic Deposit Plan (SDP)

    Bajaj Finance Limited offers a monthly investment scheme, which is similar to a fixed deposit, called the Systematic Deposit Plan (SDP). Customers can make investments in small monthly deposits. The maturity period ranges from a minimum of 1 year to a maximum of 5 years. There are two variants of savings to choose from – the Single Maturity Scheme and the Monthly Maturity Scheme. The Single Maturity Scheme offers guaranteed returns without the risk of negative returns and has all the benefits of a traditional Systematic Investment Plan (SIP). There are no bounce charges since penalty will not be levied even if a monthly deposit is missed. The first payment should be deposited through a cheque or online payment, but subsequent deposits are debited from the investor’s bank account through a NACH mandate. Once the first deposit is booked for a tenure, the tenures for all subsequent deposits will be scheduled to mature on the same date. The interest earned is taxable in the year of receipt.

    23 November 2020

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