A Recurring Deposit or RD as it is commonly called is a unique term deposit offered by banks. It is an investment tool which permits those with an ability to make regular deposits earn decent returns on their investment. Basically consisting of regular deposits and an interest component, a Recurring Deposits provides flexibility and ease of use to individuals. Account holders can choose to invest a particular amount each month, ensuring that they have sufficient income for an emergency, with the RD earning decent interest on the amount. Given the fact that FDs are rigid and are not ideal for short terms, a Recurring Deposit is an ideal investment cum savings option. Almost all major banks in India offer a Recurring Deposit Account, with the term typically ranging between 6 months and 10 years, providing individuals an opportunity to choose a term as per their needs. Competition among banks to attract new customers has ensured that interest rates are competitive, helping an investor earn a good amount on maturity. The interest rate, once determined, does not change during the tenure, with the Reserve Bank of India ensuring that strict guidelines are followed. On maturity, the individual will be paid a amount which includes the regular, periodic investments and the interest earned on them.
Features of Recurring Deposit Account
The main features of Recurring Deposit account are as follows:-
• Recurring Deposit schemes aim to inculcate a regular habit of saving among the public.
• Minimum amount that can be deposited varies from bank to bank. It can be an amount as small as Rs.10.
• The minimum period of deposit starts at six months and the maximum period of deposit is ten years.
• The rate of interest is equal to that offered for a Fixed Deposit and is hence higher than any other Savings scheme.
• Premature and midterm withdrawals are not allowed. However, the bank may allow closing the account before the maturity period, sometimes with a penalty for premature withdrawal.
• RD offers the additional benefit of taking loan against the deposit, i.e., by using the deposit as collateral. About 80 to 90% of the deposit value can be given as loan to the account holder.
• The Recurring Deposit can be funded periodically through Standing Instructions which the instructions are given by the customer to the bank to credit the Recurring Deposit account every month from his/her Savings or Current account.