Recurring Deposit Account: Benefits & more
People find it tough to save a fraction of their regular income every month. It becomes difficult because we have the habit of spending more on what we want than just what we need. If we keep the amount we intend to save with us, most of the time we end up spending them on something or the other. The recurring deposit scheme comes to our rescue at this juncture.
We can save a fixed amount every month in a recurring deposit account with our chosen bank. At the top of it, we can also earn interest (the same rate given on fixed deposits) on our saved amount.
The article sheds light on recurring deposit, recurring deposit account, and other relevant aspects on the given topic.
Explaining Recurring Deposit
A Recurring Deposit (RD) happens to be a kind of term deposit available with banks. Each month a fixed amount is deposited by the people having regular incomes into their recurring deposit account. It not just encourages them to make some savings securely but also allows them to earn interest at the rate applicable to FD (Fixed Deposits). It is a smart investment tool for salaried people and individuals with less amount of money.
It helps to save any amount of money (fixed for every month) over a while. Recurring deposits are among the safest investment options you have. It is not subject to market risks.
Just deposit a fixed amount (as you decided on) every month, and you have your savings besides good interest applicable. After the maturity of the RD, you will receive the principal amount along with the claim. Senior Citizens receive 0.5% interest more than other RD account holders.
Why Not Invest in Fixed Deposit if the Interest Rates are the Same?
One might wonder why not directly save money in a fixed deposit (FD) account when the RD and FD rate of interest are the same. The main difference between the two deposit account is the amount to be saved. If you do not have a lumpsum amount to deposit, it is better to opt for a recurring deposit product.
When you wish to save a little amount over a while and get good returns, you have RD as your best investment option.
Some Interesting Facts Worth Knowing About
The RD account holder can directly transfer the fixed amount (that he deposits every month) from his savings/current account to the RD account.
The minimum investment amount you can deposit in your recurring deposit account is as low as Rs 1000- Rs 2000/- as per the RD scheme.
In case you are planning to open your recurring deposit account with the same bank where you have your savings account, you can link these two accounts and need not do any documentation.
Your recurring deposit amount is never subject to market risk.
The most attractive feature of this deposit account is that you will never be penalised in case you miss the payment of one month.
An online recurring deposit facility is available these days and almost all nationalised as well as private banks offer it.
Benefits Related to Recurring Deposit
If you open a recurring deposit account, you will get to benefit from an array of advantages. The most prominent ones are pinpointed here.
An excellent investment tool for people with limited salary
The most significant advantage of having a recurring deposit is that you do not need depositing a large sum of money. People with less income find this extremely beneficial. It will not be a burden to you.
You can save your money in RD as low as six months only.
There are also no strict rules fixing the timeframe and stretching it to long-duration unnecessarily. You do not need to commit to a longer fixed period.
Enjoy an impressive return with a high-interest rate on you RD
Though you do not require managing a lumpsum amount for starting your recurring deposit account, you are entitled to an interest rate that FD account holders enjoy. Some banks are known to offer a higher interest rate on a periodic deposit accounts than they would on the savings account.
The interest rates are charged yearly. On maturity of the RD, the account holders will receive the amount with quarterly compounding.
Save a little every month over some time
A recurring deposit account is explicitly designed to infuse and encourage the saving habit among people with a limited fixed salary. Not everyone has the financial freedom to save a hefty amount over an extended timeframe or at a single go.
The recurring deposit allows you to save a meagre amount every month to receive an impressive amount on its maturity.
Documentation for an RD account
If you already have a savings account opened with a bank, you can link the savings account to open your new recurring deposit account. The documents are not at all a challenge to arrange. The ID proof you need is
- Aadhar Card
- Senior Citizen ID Card (for senior citizens)
- Driving License/PAN card
- Government ID card
You can open an RD account in your nearest post office as well.
These are the salient features of an RD account and the most significant advantages that the account holders can enjoy.
You can open an RD account online
You can easily open your RD account online as well by logging on to the bank’s internet banking. Input your login details (username and password), and you are all set to open your recurring deposit account online.
Hopefully, the information on the RD here can help people make an informed decision. The benefits are indeed beneficial to people with fixed salaries. It aims at infusing the habit of savings among the masses and help them make better use of their earnings.
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Q. What taxes apply to recurring deposits, and are RD interests taxable?
Ans: TDS or Tax Deducted at Source applies to RD. In case you do not earn a taxable income, you need to submit a 15G form to avoid TDS on your RD. There will be no TDS deduction on interest up to Rs 40,000 for investors under the age of 60. This limitation exceeds Rs 50,000 in the case of senior citizens, which means no TDS for them up to this amount. The tax payable is calculated by the rate of the tax slab that the account holder (investor) is subject to. Stay updated with the recent developments to know the deduction amount.
Q. Is RD Calculator helpful?
Ans: Yes, it is highly useful. The returns on RD are complicated to calculate for us accurately. It also consumes a lot of time. Tracking the continuous investment (recurring) also seems challenging, and also the interest is generally compounded every quarter. Besides all these, other important variables can influence the calculations. An RD calculator is designed to simplify the complex calculations and helps the account holder/investors find the exact figure their investment will amount to after the relevant timeframe. Except for the TDS deduction, do all other calculations using this calculator now.