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What is Recurring Deposit (An alternative to SIP) ?

Why is Recurring Deposit is the safest investment tool?


Everyone will be searching for how to save money in this period where creating an emergency fund is necessary and achieving finical freedom. In this article, we will explain various topics mention below-

What is Recurring Deposit and how it can be benefited?

How to achieve your various goals with protecting your capital?

Recurring Deposit (RD) is an investment term of deposit offered by various banks to make regular deposits offer a fixed term. It provides an opportunity to save money by investing regular monthly deposit over a period of time. The interest rates are usually starting from 5.00% - 8.00%

The main advantage of RD is that it is a Risk-free investment as the returns are fixed and you will be receiving the applicable amount at the time of maturity. RD offers greater flexibility than FD (FixedDeposit) as there are various payment options available. The recurring deposit helps when there is no lump sum amount to invest. The process of investing in RD is very simple and easy to use.

Various Features of a RD account

·         Minimum Investment- The minimum amount starts from Rs 1000, Varies from bank to bank and the maximum amount is no limit for some banks.

·         Deposit term-. RD ranges from a minimum tenure of 6 months to 10 years according to needs. The interest rates are fixed once the RD is decided on the basis of tenure and maturity.

·         Interest rate - The interest rates are changing according to market conditions which will vary between 5% to 7 % as it depends on repo rates from RBI. The interest rates are high for medium terms whereas for the long term the rates will below.

·         Maturity amount-

·         Loan against deposit- Up to 90 % of the deposited amount, loans, and OD can be taken according to banks.

·         Flexi RD Account - Some Banks also provide Flexi RD Account in which there is a flexibility of amount deposit as per his/her convenience with various conditions applied.

 

 Various use of RD

·         Short term goals like a vacation, Gifts and many more

·         Marriages Expenses

·         Higher Education.

·       It helps to create a regular habit of saving money. 


It is similar to SIP (systematic Investment Plan) in which every month a fixed amount of money is transferred to RD account for a fixed period of time and fixed interest rate. Rd is useful when you do not have lump sum amount to invest for your needs because investing step by step is easy for everyone. It is used to meet short term and long-term goals easily as the returns are fixed. It also helps to create funds for an emergency.

For senior citizens of age 60 years and above there will be 0.25% to 0.75% interest rate extra provided. Minors can open an RD account easily under parents’ guardianship. The nomination facility is also available.

Various terms in RD account

·         Short term tenure – 6 months to 1 year

·         Medium-term tenure – 1 year to 5 year

·         Long term tenure- 5 years to 10 years.


 RD Interest Rates

Name of the Bank

Regular RD Interest Rates (p.a)

HDFC Bank RD

6.25%-7.25%

SBI RD

6.70% -6.85%

ICICI Bank RD

6.00%-7.25%

Bandhan Bank RD

6.40%-7.10%

Canara Bank RD

6.35%-7.00%

 

Disadvantages of RD

There is a penalty charge for not depositing monthly installments. If in case more than 6 consecutive installments are not paid the account shall be closed and the remaining balance is paid to the account holder.

TDS (Tax Deduction at source) is applicable to interest paid on recurring deposit account. IF the income is above Rs 10000 there is 10% TDS is deducted by the bank.

Premature withdraw of RD - There is a 1% penalty levied by the bank in case of premature withdraw of the amount before the term ends. Banks do not allow partial withdraw in the RD account. Also, the incentives provide are not provide in terms of premature withdrawal

 For for information regarding new business ideas , new investment ideas follow our website – https://www.newideas4you.com/


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