What are the features of Recurring Deposit?

[Shashank Bhaskar]

Recurring deposit is the most preferred investment choice in India, among the low-risk investment tools with moderate and assured returns. In the selection of investment number and tenure, it comes with an option of versatility for clients accompanied by several other advantages.

This investment tool provided by multiple banks and NBFCs helps channel monthly savings for long or short-term corpus formation, available in flexible tenure options ranging from six months to 10 years.

Investors may therefore select a minimum sum for guaranteed wealth generation to be invested every month over the period.

If you do not have a lump sum to fulfil short-term targets, the intention is well served by depositing a small share of your income into the RD account each month.

With various financial institutions such as banks, NBFCs or even post offices, you can choose to open your RD account. Although the minimum amount of investment may vary from one institution to another as per your budget, you can typically start with a considerably small amount.

The features of RD are:

• The minimum sum for investment varies from one bank to another. With a sum as low as INR 10, you can open this account.
• The minimum term of deposit begins at six months. With a maximum period extending up to 10 years, you can select an acceptable duration of the warranty.
• The RD interest rates paid on RDs are often higher than the interest that a savings account receives. Also, the interest rates on RDs offered are close to what you will earn from FDs.
• However, instead of a lump sum amount, the periodic investment makes it appropriate for individuals who seek to build a corpus through their monthly savings.
• Withdrawal from this account is only permitted after it has reached maturity. If you want to deduct the amount before the duration of maturity expires. However, it will attract a premature penalty.
• There is also an option for you to get a loan against the RD. As a loan against deposit used as collateral, banks can allow up to 95 per cent of the deposit amount.

Together with many other institutions, almost all banks in the country offer investment options for recurring deposits. The recurring deposit interest rates, therefore, extremely competitive.

The interest rates may vary between 5 per cent and 8 per cent, depending on the prevalent market trends at the time of account formation. However, for most banks, the average recurring deposit rates hover about 6 per cent to 7 per cent.

You can use the interest rate calculator while doing internet banking or using digital banking app for understanding your investments on the go.