What is RD? – Know About the Features and Benefits

A recurring deposit is a type of term deposit that is very popular among investors as a reliable savings or low-risk investment plan. This system offered by banks and financial institutions allows depositors to invest a fixed amount of money on time. In this article, we will discuss- What is recurring deposit.

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What is a Recurring Deposit?

Recurring Deposits, or RDs for short, are a special kind of term deposit that Indian banks provide. It’s an investment platform that lets users make consistent deposits and get respectable returns. Because of the interest component and regular deposit requirement, it frequently offers users and individuals freedom and simplicity of investing.

A recurring deposit is essentially a kind of term deposit where the client invests a specific amount of money for a predetermined amount of time at regular intervals rather than locking in a big sum all at once, as with a fixed deposit (FD). The whole sum is invested in the Recurring Deposit at the end of this period, and the consumer receives interest. The reason regular deposits are named that is clients make monthly, recurrent investments. A Recurring Deposit can be opened with any Indian central bank.

Benefits of Recurring Deposits

The benefits of recurring deposits in India are-

• Low Minimum Deposit: Most banks in India offer RD with low minimum deposit requirements for better accessibility.
• Credit facility: RD can also be used as collateral to avail loans from the bank. This feature provides liquidity to investors in times of financial distress.
• Systematic savings: RDs encourage disciplined savings by allowing individuals to deposit a fixed amount regularly. This helps inculcate the habit of saving and ensures a consistent flow of funds towards investment.
• Flexibility: RDs offer flexibility in terms of deposit amount and duration.
• Guaranteed Returns: RDs provide guaranteed returns as the interest rate is fixed at the time the account is opened. This offers investors stability and predictability.

Advantages and Disadvantages of Recurring Deposit Account

Some advantages and disadvantages of RD account can be seen below-

Advantages–

• RD accounts are fixed return instruments. This means you get a fixed and guaranteed return on your investment.
• Opening a recurring deposit is easy. You can easily open it online using your bank account.
• RD account helps you cultivate a disciplined investment habit. Since you have to invest regularly, the amount will be automatically deducted from your account.
• One of the biggest advantages of recurring deposits is that you can close the account early.

Disadvantages-

• Restricted flexibility: Partial withdrawals are not possible with recurring deposits, so you cannot take out portion of your investment and leave the rest to accrue interest.
• Penalty Fees: You may be obliged to pay a penalty fee that will drastically lower your earnings if you fail to make the required payment or deposit the required amount into your RD account.
• Reduced returns: Along with RD account interest rate, there are other investment options with variable returns that could outperform RD yields.

Eligibility Criteria for Opening an RD Account

The eligibility to open an RD account is-

• Indian resident
• Seniors
• Minors under the supervision of parents/guardians
• Non-Resident Indians

Types of Recurring Deposit Accounts

The four different types of recurring deposit accounts are:

• Regular deposit Account

The regular RD account is intended for Indian residents who are above 18 years of age and have a fixed amount to invest. Regular Recurring Deposit allows account holders to deposit a fixed amount once a month for a fixed period to earn fixed interest on the deposited amount on maturity.

• RD account for Minors

RD Current Account is for Indian residents above 18 years of age and with a consistent amount to invest. Regular RD account allows account holders to deposit a fixed amount once a month for a fixed maturity period to earn fixed interest on the deposited amount at maturity.

• RD account for Senior Citizens

Banks offer special RD accounts for people over 60 years of age. Seniors can earn higher interest on their RD accounts than ordinary depositors according to the bank’s terms and conditions. 

• NRE/NRO RD Account

Non-Resident Indians (NRIs) can open NRE i.e. Non-Resident External account and NRO i.e. Non-Resident Ordinary account. NRIs can then invest in RD using an NRE or NRO deposit account. The most significant advantage of NRIs for depositing money in an RD account is that the account does not have to pay any taxes in India.

Also read– NRE vs NRO: Which one should you choose?

How to Open a Recurring Deposit Account Online?

Below are the steps a user needs to follow to open a RD account account online:

• Log in to the bank’s mobile application.
• Find the option to open a RD account , for example under “investments” or “savings”.
• Enter the desired deposit amount and select the desired duration and type of RD account
• Enter the date when the monthly deposit will be made.
• Click “Continue” or “Submit” to complete the process.
• Currently, Paytm Payments Bank Limited (PPBL) does not offer the facility to open a RD account online.

How to Apply for a Recurring Deposit Account Offline?

The following are the choices for initiating an offline r.d:

• Go to the bank in your area.
• Speak with a bank officer, fill out the RD account Application Form, and include information about the type of Recurring Deposit Account you want to start, its duration, and the RD maximum amount you want to deposit each month, and any nominations.
• Forward the application together with the deposit payment.
• You can request a recurring deposit account from a bank clerk.
• It is not currently possible to open a recurring deposit account in person at a bank branch with Paytm Payments Bank Limited (PPBL).

Wrapping Up

RD account are perfect for learner investors since they foster the development of a steady investing habit. RD can also be used to lay aside money for short-lived objectives like weekend getaways or insurance premiums. Despite the low returns, RD is cultivating a practice of thrift.

If you want hassle-free higher RD account interest rate income over a predetermined length of time, a recurring deposit is the perfect answer.

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