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What is a Recurring Deposit?

Recurring Deposit (RD) scheme is a popular investment option in India. It is a low-risk and guaranteed income term deposit. The RD scheme gives investors the flexibility to choose their desired investment tenure and investment amount. Therefore, you can invest a fixed amount at regular intervals for the entire duration of the deposit tenure. However, RD doesn’t allow premature withdrawals. All premature withdrawals attract penalties.
Furthermore, it is a small savings scheme that is suitable for all kinds of investors. It is a regular savings scheme that inculcates the habit of saving among investors. The minimum investment for a recurring deposit is INR 100, and the amount varies from bank to bank. Furthermore, the interest on the deposit compounds on a quarterly basis, making it a good investment option. The returns from an RD scheme are higher than a savings bank account. The interest rates on RD are in the range of 2.5% to 6.5%. Also, RD offers higher interest rates for senior citizen depositors.

Recurring Deposit Interest Rate 2022

Bank NameRegular RD Rates (%)Senior Citizen RD Rates (%)
Axis Bank2.50 – 5.752.50 – 6.50
IDBI Bank2.70 – 5.603.20 – 6.35
Post Office5.805.80
Union Bank of India3.0 – 5.503.00 – 5.50
Punjab National Bank2.90 – 5.253.40 – 5.75
SBI Bank2.90 – 5.503.40 – 6.30
Kotak Bank2.50 – 5.603.0 – 6.10
ICICI Bank2.50 – 5.603.0 – 6.35
HDFC Bank2.50 – 5.603.0 – 6.35
Bank of Baroda2.80 – 5.353.30 – 6.35
IOB3.0 – 5.453.50 – 5.95
Canara Bank2.90 – 5.502.9% – 6.0
Yes Bank3.25 – 6.253.75 – 7.0
BOB2.85 – 5.202.85 – 5.95
Note:

The recurring deposit interest rates change from time to time according to the banks.

Recommended: You should check All Bank Deposit Rates

Features

Following are the features of a recurring deposit:

  • Investment Amount: RD investments require low investments. Therefore, they are suitable for all types of investors. You can start your RD investment with as low as INR 10. However, the minimum deposit amount can be different for different banks.
  • Tenure: The investment tenure for RD schemes ranges from 6 months to 10 years.
  • Interest Rates: RDs offer higher interest rates than regular savings bank accounts. Furthermore, senior citizen depositors enjoy preferential interest rates. 
  • Interest Compounding Frequency: The interest compounding frequency for an RD account is on a quarterly basis.
  • Premature Withdrawals: RDs do not permit premature withdrawals. However, in certain cases, you can prematurely withdraw your deposits. But such withdrawals attract a penalty.
  • Loan: You can avail a loan against your RD investments.
  • Automatic Investments: You can give standing instructions to your bank and enjoy the benefit of automated investments.

Advantages and Disadvantages

Following are the advantages and disadvantages of investing in a recurring deposit:

Advantages

  • A regular savings scheme. Inculcates the habit of investing and saving regularly.
  • No penalty for missing an RD instalment.
  • Higher interest rate than a regular savings bank account.
  • Low minimum investment amount. You can open an RD account with just INR 10.
  • Hassle-free account opening. You can open an RD account either online or offline. Furthermore, if you have a savings account with the same bank, the process is easy.
  • Simple process and hassle-free documentation. Also, existing account holders may not have to submit any documents.
  • Guaranteed returns. Also, a great way to save money on a regular basis.
  • Suitable for short to medium-term goals.
  • You can take a loan against your deposit.

Disadvantages

  • Recurring deposits have a lock-in period. Premature withdrawals attract a penalty.
  • The monthly instalment amount is the same for the entire duration of the deposit.
  • Interest rates are lower when compared to other saving/ investment schemes.

How To Calculate Interest on RD?

Interest for a recurring deposit is compounded on a quarterly basis.

Financial Quarters for Recurring Deposit:

  • Quarter 1: April to June
  • Quarter 2: July to September
  • Quarter 3: October to December
  • Quarter 4: January to March

When you open a recurring deposit account, the interest for your first quarter is calculated as simple interest. For the following quarters, the compounding effect comes into the picture. For example, when you open an RD account in the month of August, the amount will earn only simple interest until the month of September. The interest starts compounding only after the first quarter, i.e. from October.

Formula

You can use the following formula to calculate the maturity value of an RD:
M=R[(1+i) (n-1)]/1-(1+i)(-1/3))

Where,
M = Maturity value
R = Monthly Instalment
N = number of quarters (tenure)
i = Rate of interest/400
Monthly Instalment (R): This is the monthly amount that is invested in the RD account. Every bank has a different minimum deposit amount, which can be as little as Rs 10.
Rate of Interest (i): The interest rates vary from bank to bank and depend on the RD’s tenure. Furthermore, it depends on the amount of deposit as well.
Tenure (N): It is the duration of the scheme. Usually, the tenure of an RD scheme varies between 6 months to 10 years.

Let’s take the example of Archana, who is planning to invest INR 10,000 every month at 6% interest p.a. for 60 months or 20 quarters. Using the formula, the maturity value is
M = 10,000 [(1+6/400) (20-1)]/1-(1+6/400)(-1/3))
M = INR 7,00,636
The interest earned = INR 1,00,636
The maturity value for Archana on her investment in RD is INR 7,00,636.
The calculations might look simple. However, it is often time consuming, and the scope for human error is high. Therefore, you can use Scripbox’s RD Calculator to get accurate results. The calculator is available online and is free to use.

How To Open a Recurring Deposit Account?

You can open a recurring deposit online or offline. Following are the steps to open an RD account:

Online

  • Login to your net banking account or mobile banking account.
  • Under the accounts section, select the ‘Open a Recurring Deposit’ option.
  • Enter the instalment amount and tenure.
  • Select the account from which you wish to make the investment in RD.
  • Check the interest rate for your RD scheme. Next, enter nominee details.
  • Upon checking the maturity amount, click the checkbox to agree on all of the terms and conditions.
  • Next, click on submit to complete the RD account opening process.
  • You will now receive a confirmation message on the screen and also an email to your registered email address.
  • Upon successfully opening, the RD instalment amount will be debited from your account.

Offline

  • Visit the bank branch where you have your savings account.
  • Duly fill the Recurring Deposit account opening. Provide all the details like instalment amount, deposit tenure, mode of payment, nominee details and other details.
  • Make your first instalment payment through cash or cheque.
  • Upon verification of your application, the bank representative will process your application and open the RD account.

Recommended: If you have post office rd account then learn how to check post office rd account online

How To Close a Recurring Deposit Account?

Closing a recurring deposit account is very easy. You can do it through any of the following modes:

  • Offline: Visit the bank branch where you have your RD account and request account closure. The bank will verify your details and process the closure request.
  • Net Banking: Using your net banking credentials, log in to your account. Next, select the RD scheme you wish to close. Confirm your closure submission, and the account will be closed. In case of premature withdrawals, choose the ‘Premature Withdrawal’ option.
  • Mobile Banking: Login to your mobile banking app, select the RD scheme and request for account closure. If premature closure, choose the premature closure option.

It is important to note that you cannot close your RD account prematurely. Premature closures are allowed only under certain circumstances. Also, all premature withdrawals attract a certain penalty.

Furthermore, the deposit amount will be credited to the linked savings bank account.

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