Glossary of RD Terms
Understanding the terminology associated with Recurring Deposits (RDs) is essential for every investor aiming to maximize savings and returns.
A Recurring Deposit (RD) is one of the most popular savings instruments offered by banks and financial institutions in India. However, understanding the specific terms and conditions associated with an RD account can sometimes be confusing—especially for new investors.
This comprehensive glossary of RD terms will help you clearly understand the terminology used in RD schemes so you can make informed financial decisions.
A
Account Holder
The person who owns and operates the RD account in whose name the deposit is made.
Account Tenure
The fixed period for which the RD account is maintained. Tenure can vary from 6 months to 10 years, depending on the bank.
Auto-Debit Facility
An arrangement allowing automatic deduction of the RD installment amount from your linked savings account each month.
B
Banking Partner
The financial institution where you open and maintain your RD account.
Beneficiary
A person nominated by the account holder who receives the maturity proceeds in case of the depositor’s demise.
C
Compounding Frequency
The frequency at which interest is added to the principal amount—monthly, quarterly, half-yearly, or yearly.
Closed RD Account
An RD account that has been discontinued or matured. Premature closure may involve penalties.
Core Banking System (CBS)
A centralized platform enabling RD transactions and account access from any branch of the bank.
D
Deposit Amount
The fixed sum deposited every month in your RD account.
Due Date
The date each month by which the RD installment must be deposited to avoid penalty or loss of interest.
E
ECS/NACH Mandate
An authorization allowing automatic deduction of your RD installment from your bank account every month.
Effective Yield
The actual rate of return earned after accounting for the compounding effect of interest.
I
Installment
The fixed monthly amount deposited into the RD account throughout the tenure.
Interest Rate
The rate offered by the bank on your RD, expressed as a percentage per annum.
M
Maturity Amount
The total sum you receive at the end of the RD tenure—comprising your principal deposits plus accumulated interest.
Maturity Date
The date on which your RD completes its term and the maturity amount becomes payable.
Monthly Recurring Deposit
A savings product where a fixed amount is deposited every month for a chosen period to earn interest.
N
Nomination Facility
An option that allows you to appoint a nominee who can claim the RD amount in the event of your death.
P
Penalty
A small charge levied by the bank for delayed or missed installment payments.
Premature Withdrawal
Closing the RD account before the end of its maturity period. It usually results in lower interest earnings or penalties.
Principal Amount
The total of all monthly installments deposited into your RD account.
R
Recurring Deposit (RD)
A fixed savings instrument that allows you to deposit a fixed amount every month for a set period and earn interest on it.
Renewal
An option to renew or extend your RD upon maturity for another tenure, either with the same or revised interest rate.
T
Tax Deducted at Source (TDS)
A certain percentage of tax deducted by the bank on the interest earned if it exceeds the prescribed limit as per income tax laws.
Tenure
The duration for which the RD account remains active, usually ranging from 6 months to 10 years.
V
Variable RD
An RD type where the depositor can increase or decrease the monthly deposit amount (offered by select banks).
Importance of Understanding RD Terminology
Having a clear understanding of RD-related terms helps you:
- Choose the most suitable RD scheme
- Plan your deposits effectively
- Calculate returns accurately
- Avoid penalties and financial missteps
When you know the exact meaning of terms like tenure, compounding frequency, or premature withdrawal, you can make smarter, goal-oriented savings decisions.
FAQs on Glossary of RD Terms
- What is an RD account?
A Recurring Deposit (RD) account allows you to deposit a fixed amount every month for a predetermined period and earn interest on it.
- Is the interest rate fixed for the entire RD tenure?
Yes, once you open an RD, the interest rate remains fixed throughout the tenure, regardless of market changes.
- Can I change the monthly installment amount after starting my RD?
No, the deposit amount remains fixed. However, some banks offer flexible or variable RD schemes that allow changes.
- What happens if I miss an RD installment?
Banks may charge a small penalty or reduce the interest payable if an installment is missed.
- How is the RD maturity amount calculated?
The maturity amount is calculated based on the principal deposited, interest rate, and compounding frequency.
- Is TDS applicable on RD interest?
Yes, if the interest earned exceeds the prescribed annual limit set by the Income Tax Department, TDS is deducted.
- Can I open more than one RD account?
Yes, you can open multiple RD accounts with the same or different tenures and deposit amounts.
- What is the difference between RD and FD?
In an RD, you deposit money monthly, whereas in a Fixed Deposit (FD), you invest a lump sum amount for a fixed period.
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