Are you looking for a reliable and profitable investment option? Are you tired of high-risk investments and want to earn returns in a hassle-free manner? Then, recurring deposits (RDs) might be the perfect option for you. In this article, we will cover the basics of RDs, including RD full form and what they are, how they work, and their benefits.
Recurring Deposit (RD) is a popular financial instrument that helps you to invest your money on a regular basis and earn interest over a specified period of time.
It is a type of fixed deposit where you can invest a fixed amount of money at regular intervals for a pre-determined period.
The interest rate offered on RDs is usually higher than the interest rate on savings accounts.
What is RD?
Recurring Deposit is a type of savings account offered by banks and financial institutions. It allows you to invest a fixed amount of money at regular intervals for a pre-determined period. The tenure of an RD usually varies from 6 months to 10 years. The interest rate offered on RDs is usually higher than the interest rate on savings accounts.
How does an RD work?
An RD works in a simple and straightforward manner. You need to choose a fixed amount that you want to invest in the RD every month. This amount is deducted from your savings account on a fixed date every month and deposited into your RD account. The interest on your RD is calculated on a quarterly basis and is credited to your RD account at the end of every quarter. At the end of the RD tenure, the principal amount along with the interest earned is credited to your savings account.
Benefits of RDs
There are several benefits of investing in RDs:
1. Regular savings
RDs help you to save a fixed amount of money every month. This helps inculcate a habit of regular savings and helps you to achieve your financial goals.
2. Guaranteed returns
RDs offer guaranteed returns at a fixed interest rate, which is usually higher than the interest rate on savings accounts. This ensures that you earn a fixed return on your investment.
3. Low risk
RDs are a low-risk investment option as they are not affected by market fluctuations. The interest rate is fixed at the time of opening the RD account and remains the same throughout the tenure of the RD.
4. Flexibility
You can choose the tenure of the RD as per your financial goals. RDs are available for tenures ranging from 6 months to 10 years.
Factors to consider before investing in RDs
Before investing in RDs, it is important to consider the following factors:
1. Interest rates
Different banks and financial institutions offer different interest rates on RDs. It is important to compare the interest rates offered by different banks before opening an RD account.
2. Tenure
The tenure of the RD should be chosen based on your financial goals. A longer tenure will help you earn more interest, while a shorter tenure will allow you to access your funds sooner.
3. Premature withdrawal
Most banks and financial institutions allow premature withdrawal of RDs. However, they charge a penalty for premature withdrawal. It is important to understand the penalty charges before opening an RD account.
4. Minimum investment amount
Banks and financial institutions have a minimum investment amount for opening an RD account. It is important to choose an RD that has a minimum investment amount that suits your budget.
5. Frequency of deposit
You can choose the frequency of deposit for your RD account, which can be monthly, quarterly, or bi-annually. It is important to choose a frequency of deposit that is convenient for you.
Comparison with other investment options
RDs are a popular investment option for those who want a fixed and guaranteed return on their investment. However, they may not offer the same returns as other investment options, such as mutual funds or stocks. RDs are a low-risk investment option, whereas mutual funds and stocks are high-risk investment options.
RD interest rates
The interest rate offered on RDs varies from bank to bank and is subject to change from time to time. The interest rate on RDs is usually higher than the interest rate on savings accounts. The interest rate on RDs is fixed at the time of opening the RD account and remains the same throughout the tenure of the RD.
Tax implications of RDs
The interest earned on RDs is taxable as per the income tax laws in India. TDS (Tax Deducted at Source) is applicable if the interest earned on RDs exceeds Rs. 10,000 in a financial year. It is important to declare the interest earned on RDs in your income tax returns.
Premature withdrawal of RD
Most banks and financial institutions allow premature withdrawal of RDs. However, they charge a penalty for premature withdrawal. The penalty charges for premature withdrawal vary from bank to bank and depend on the tenure of the RD.
How to open an RD account?
You can open an RD account with any bank or financial institution that offers this service. You can visit the nearest branch of the bank or financial institution and fill up the RD account opening form. You can also open an RD account online through the bank’s website.
Documents required for opening an RD account
The following documents are required for opening an RD account:
- Identity proof (PAN card, Aadhaar card, voter ID, passport, driving license, etc.)
- Address proof (utility bills, rental agreement, Aadhaar card, passport, etc.)
- Passport size photographs
Types of RD accounts
There are different types of RD accounts offered by banks and financial institutions. Some of the popular types of RD accounts are:
1. Regular RD
This is the most common type of RD account where you invest a fixed amount every month for a pre-determined period.
2. Flexi RD
In a Flexi RD account, you can vary the amount of your deposit every month. The interest rate on a Flexi RD is usually lower than that on a regular RD.
3. Senior Citizen RD
Senior Citizen RDs are designed for senior citizens and offer higher interest rates than regular RDs.
Conclusion
RDs are a popular investment option for those who want a fixed and guaranteed return on their investment. They are a low-risk investment option and offer guaranteed returns at a fixed interest rate.
Before investing in RDs, it is important to consider the interest rates, tenure, penalty charges for premature withdrawal, and the minimum investment amount.
FAQs on Recurring Deposit
- What is the minimum investment amount for opening an RD account? Ans: The minimum investment amount for opening an RD account varies from bank to bank and depends on the bank’s policies.
- Can I withdraw my RD before the maturity date? Ans: Yes, you can withdraw your RD before the maturity date. However, banks and financial institutions charge a penalty for premature withdrawal.
