Recurring Deposit Meaning, Features, Types, & Benefits

A Recurring Deposit (RD) is a popular low-risk investment option in India that offers moderate and reliable returns. It allows you to choose how much to invest and for how long, with flexible options.

You can invest in an RD for anywhere between 6 months to 10 years, and it is available through many banks and financial institutions. This option helps you save money regularly each month, whether for short-term or long-term goals.

If you do not have a large amount of money to invest at once, you can still start by depositing a small amount to the RD account every month. This helps you build wealth over time.

What Is Recurring Deposit (RD)?

A Recurring Deposit (RD) is a type of term deposit offered by banks or financial institutions that allows individuals to save a fixed amount regularly for a specified period. It is designed to encourage systematic savings by offering a structured way of saving.

Key Role of RD in Systematic Savings:

Fixed Monthly Contributions: The account holder deposits a fixed sum every month into the RD account for a specific tenure (typically 6 months to 10 years).

Interest Earned: The bank pays interest on the amount deposited, which is higher than a regular savings account but lower than a Fixed Deposit (FD). The rate varies based on the bank and tenure.

Tenure: The RD has a fixed tenure, and the maturity period can range from a few months to several years.

Maturity Amount: At the end of the tenure, the individual receives the total principal amount (total of monthly deposits) along with the interest earned during the tenure.

Interest Rate: The interest rate on RD is pre-decided at the time of opening the account and is usually higher than that of a savings account.

Penalties for Missed Deposits: If the monthly deposit is missed, the bank may charge a penalty, or the account could be discontinued, depending on the bank’s policies.

Systematic Savings Plan: RD is designed to help people save regularly, fostering discipline in saving and providing a fixed sum for future financial needs.

Liquidity: While RDs offer a good return, they are not as liquid as savings accounts because the deposited amount is locked until the maturity date, except in cases of premature withdrawal (with penalties).

Suitable for Small Savers: RDs are ideal for individuals who want to save small, fixed amounts regularly rather than making large one-time deposits.

Taxation: The interest earned on RDs is subject to tax, and TDS may be applicable if the interest exceeds the taxable limit. 

How to Open an RD Account Online?

• Log in to your online net banking account or app.
• Select the option to open an e-RD (Recurring Deposit) account.
• Enter the account number for the installments, the installment amount, and the duration. Check the interest rate and note the nominee for the account.
• After checking the maturity amount, tick the box to agree to the terms and conditions.
• Submit your application. A confirmation message will appear, and you will receive an email with the RD receipt at your registered email address.
• The specified amount will be deducted from your selected account.
   

How to Open an RD Account Offline?

• Go to the local branch of the bank where you have a savings account.
• Fill out the RD (Recurring Deposit) application form, providing details like the amount you want to deposit each month, how you will pay, the deposit period, your nominee, and any other required information.
• Pay the first deposit using a cheque or cash.
• The bank will process your application within the time given by the bank staff.

What are the Features of a Recurring Deposit (RD)?

Below are the features of an RD:
 

Fixed Monthly Contributions: In an RD, you deposit a fixed amount of money every month for a specified tenure.

Fixed Interest Rate: The interest rate offered is fixed at the time of opening the RD and remains constant throughout the term.

Maturity Period: RDs typically have a tenure of 6 months to 10 years, and you receive the maturity amount after the completion of the term.

Compounded Interest: The interest earned is compounded quarterly, increasing your returns over time.

Premature Withdrawal: You can withdraw your RD prematurely, but there may be penalties or reduced interest rates for doing so.

No Tax Benefits: Unlike some other financial instruments, RDs do not offer tax deductions under Section 80C of the Income Tax Act.

What are the types of Recurring Deposits?

Recurring deposits (RD) come in different types, each suited for people with different financial goals. Below are the common types of RD accounts offered by most banks in India:

Regular Recurring Deposit Account: This is the most common RD account available in most banks and NBFCs. Anyone over 18 can open this account by choosing a monthly deposit amount and a tenure (duration). Interest is calculated either on a simple or compound basis. You cannot add extra money during the term, and the full amount can be withdrawn only at the end of the tenure. The minimum deposit and tenure vary from one bank to another.

RD Account for Minors: Some banks allow minors (under 18) to open an RD account with the help of their parents or guardians. Parents can use this money for their child's education or other needs. The interest rates for this account are usually the same as or higher than regular accounts.

Senior Citizens Recurring Deposit Account: Senior citizens can also open an RD account, and they usually get a higher interest rate compared to regular accounts. The minimum deposit and tenure are decided by the bank. The interest is compounded quarterly, and senior citizens typically enjoy an additional 0.50% to 0.75% interest over the regular rates.

Tax Saving Recurring Deposit Account: The interest earned on an RD is subject to tax based on the depositor's income. The Tax Deducted at Source (TDS) depends on the individual's annual income, and different income slabs have different TDS rates.

NRI/NRE Recurring Deposit Account: Non-Resident Indians (NRIs) can open recurring deposit accounts under NRE (Non-Resident External) or NRO (Non-Resident Ordinary) schemes. NRIs can earn higher interest rates and save small amounts regularly with these accounts. 

What are the Eligibility Criteria for Recurring Deposits?

Below are the eligibility criteria for opening a Recurring Deposit (RD):

Age: Individuals must be at least 18 years old. Minors can also open an RD with a guardian’s consent.

Account Holder: You need to have a savings or current account with the bank where you want to open the RD.

Minimum Deposit: There is a minimum monthly deposit amount, which varies by bank (typically starting from ₹100 to ₹500).

Deposit Tenure: The tenure for an RD typically ranges from 6 months to 10 years, depending on the bank's terms.

Residency: Only Indian residents can open a recurring deposit, though Non-Resident Indians (NRIs) may be eligible through specific accounts (like NRE or NRO RDs). 

What are the documents required to open a Recurring Deposit Account?

To open a Recurring Deposit (RD) account, you typically need the following documents:

Proof of Identity:

Aadhar Card

Passport

Voter ID

Driver’s License

PAN Card

Proof of Address:

Aadhar Card

Utility Bills (Electricity, Water, etc.)

Passport

Bank Statement

Rent Agreement

Photographs:

Recent passport-sized photographs (usually 2 or more)

PAN Card:

Required for tax purposes, especially for higher deposits.

KYC (Know Your Customer) Form:

A standard form to collect your details and address proof.

Bank Account Details:

If opening with a bank where you already have an account, they may ask for your existing account number for linking purposes.

How is RD Interest Calculated?

Interest Formula: A=P*(1+r/4) 4*n

A = Final maturity amount (principal + interest)

P = Amount deposited per month

r = Annual interest rate (expressed as a decimal)

n = Number of quarters (3 months) 

What are the RD Interest Rates and Returns?

Most banks and other institutions in the country offer Recurring Deposit (RD) investment options, and the interest rates are quite competitive. The rates can range from 5% to 8%, depending on market conditions when you open the account. On average, the interest rates are usually between 6% and 7% for most banks.

Interest rates for RD can also vary based on the investor's age. For example, senior citizens often get higher interest rates compared to regular RD schemes. You can calculate your RD returns using an RD calculator.

What are the Benefits of Investing in RD?

Investing in a Recurring Deposit (RD) offers several benefits:

Safe and Secure: RDs are low-risk investments as they are offered by banks and financial institutions, making them a secure option for saving money.

Fixed Returns: With RDs, you know exactly how much interest you will earn at the end of the tenure, providing predictable and stable returns.

Discipline in Saving: The fixed monthly deposit requirement helps in cultivating a habit of regular saving, which can be useful for long-term financial planning.

Flexible Tenure: You can choose the duration of the RD, typically ranging from 6 months to 10 years, allowing you to match your financial goals.

Tax Benefits: Interest earned on an RD is eligible for tax deduction under Section 80C of the Income Tax Act up to a limit, making it tax-efficient.

Easy to Open and Manage: Opening an RD is simple and requires minimal documentation. Additionally, you can manage and track your RD online, making it convenient.

What are the Renewals and Withdrawals of an RD?

RD Renewal Process:

Automatic Renewal (Default Option): If you don’t provide any specific instructions, the RD (Recurring Deposit) will be automatically renewed at the prevailing interest rate for the same tenure.

Tenure: The renewed RD will typically be for the same duration as the original deposit.

Manual Renewal: Customer's Choice: You can manually renew the RD by visiting the bank or financial institution or via online banking.

Change in Terms: You can choose to change the tenure or amount based on your preferences.

Interest Rate Change: Upon renewal, the interest rate applicable will be the current rate at the time of renewal, which may differ from the original rate.

Documentation: Generally, no additional paperwork is needed if the RD is automatically renewed.

Manual Renewal Forms: In the case of a manual renewal, the customer may need to fill out a simple renewal form.

Renewal Confirmation: After renewal, you will receive a receipt or confirmation of the renewed RD.

RD Maturity Withdrawal Process:

Maturity Date: The RD reaches maturity after the completion of the agreed-upon tenure.

Interest Calculation: On maturity, the interest accumulated over the RD period is calculated and added to the principal amount.

Withdrawal Process: You can visit the bank branch to withdraw the matured amount.

Online Withdrawal: Many banks offer the option to withdraw the maturity amount via net banking or mobile banking.

Account Credit: On maturity, the amount (principal + interest) is typically credited to your linked savings account.

Cheque Option: Some banks may issue a cheque in case you request it.

No Withdrawal at Maturity: If no instructions are provided regarding the withdrawal or reinvestment, the bank may treat the maturity amount as per their policy, often renewing it automatically.

Tax Implications: If the interest earned on the RD exceeds ₹40,000 (₹50,000 for senior citizens), Tax Deducted at Source (TDS) will be applicable.

Form 15G/15H: To avoid TDS deduction if the total taxable income is below the exemption limit, you can submit Form 15G (for non-senior citizens) or Form 15H (for senior citizens).

Premature Withdrawal: If you wish to withdraw the amount before maturity, a penalty will apply, and you may not receive the full interest.

What are the Tax Implications of Recurring Deposits?

• The money you deposit in a recurring deposit each year is added to your yearly income. The interest you earn on your recurring deposit is subject to a Tax Deducted at Source (TDS) of 10%.
   
• However, if the interest is Rs. 10,000 or less, no TDS will be deducted. If you don't provide your PAN details to the bank, the TDS rate will be 20%.
   
• Investments in bank recurring deposits are not eligible for tax deductions under Section 80C of the Income Tax Act. So, you cannot deduct money invested in recurring deposits from your income.  However, if you invest in a post office recurring deposit with a five-year term, you can get a tax deduction under Section 80C, which can save you up to Rs. 1.5 lakh in taxes.
   
• If your income is below the taxable limit, you still need to submit Form 15G to avoid tax deductions for both fixed and recurring deposits. The interest you earn on your recurring deposit is taxable based on your income tax slab. 

How to Close an RD Account?

• You can easily close your RD account using one of these methods, depending on your bank.
   
• Go to your bank branch and ask to close your RD account.
   
• Log in to your bank's online banking and follow the steps to close your RD account.
   
• Open your bank's mobile app and follow the steps to close your RD account.
   
• In all cases, the money from your RD account will be transferred to the same savings account from which you deposited the money.

Conclusion

A Recurring Deposit (RD) offers a secure, disciplined way to invest, providing guaranteed returns with minimal risk. It is a suitable option for conservative investors seeking regular savings and financial stability. However, for those interested in higher returns, exploring options like a stock market trading app could offer potential growth, though with higher risk. Both investment avenues have their merits, depending on one's risk tolerance and financial goals.