Advantages of Investing in Recurring Deposits
Mohan and Rakesh were brothers. Mohan was a businessman, whereas Rakesh worked in a private sector financial institution. Mohan used to believe in conventional money-saving methods. He used to keep all his savings in a savings account where the interest rate was fixed. When Rakesh got to know about the benefits of recurring deposit where the customer receives the total amount invested in the Recurring Deposit and any interest earned after the term, regular investments in RDs are simple; accounts can be funded regularly. He invested in Recurring Deposit and is earning from his savings more than Mohan, who believed in conventional saving methods.
What is a Recurring Account
A recurring deposit is a deposit that is made regularly. Most Indian banks and NBFCs offer recurring deposit accounts ranging from six months to ten years. For ordinary residents, the interest rate typically varies from 3.50 per cent to 5.50 per cent per year. On all deposit tenures, senior persons receive additional interest in the range of 0.50 per cent to 0.80 per cent.
How do a Recurring Deposits account work?
An excellent fixed deposit ensures that a person saves a certain amount of money that can be released when a certain amount of time has passed. Meanwhile, you cannot touch the amount of the sum or possibly supplement it. The repeating deposit follows a similar procedure. The primary difference in this scheme is that instead of investing a lump sum, you need to deposit a specific amount into your account each month, which you determined when you opened your RD account. This could be a tiny sum that won’t empty your wallet. And when the loan matures, you’ll have a large sum over your principal, plus interest.
How to start a recurring deposit account?
Anyone can start an RD account by going to any bank or the post office and filling out the application, as well as supplying additional formal papers like a PAN card and proof of residence, and paying the first month’s money to the bank or the post office. A recurring deposit account can be formed for as little as six months or multiples of three months, with a maximum length of ten years. A Recurring Deposit’s interest rates are comparable to fixed deposit interest rates. And if you’re a senior citizen, a person will be given a 0.5 per cent extra rate of interest, similar to India Post, and certain banks will also give you a grace period of roughly 5 days.
Recurring Deposit Account Features
- The rd account has several benefits that make it a desirable investing option. Let’s have a look at the qualities of these deposits:
- You can deposit money into your RD accounts on a monthly, quarterly, or half-yearly basis, depending on the bank.
- The minimum amount necessary to start an RD account varies by bank, although it can be as low as INR 10 in some cases.
- Most banks charge the same interest rate on RDs as on FDs that do not need a lump-sum deposit.
- Investors can put any amount in the RD when the first payment is due, but it must be greater than the minimum deposit made when the account was opened.
- Recurring Deposit interest is compounded quarterly and paid at maturity.
The Advantages of an RD Account
Let’s look at the advantages of a recurring deposit account now. They are as follows:
- The loan facility most banks offer against the RD account is one of the critical advantages of Recurring Deposits. Customers can get a loan for up to 95% of their deposit amount with this service (rate may vary from bank to bank).
- The benefits of recurring deposits are that they are considered highly liquid because funds can be withdrawn at any moment if needed. However, it is essential to note that while most early withdrawals are permitted, they may be accompanied by lower interest rates or penalties.
- Customers are encouraged to save money at regular intervals by RDs, enabling them to invest for a more secure future.
- Even on small-ticket investments, recurring contributions allow investors to earn substantial returns.
- Regular investments in RDs are simple because these accounts can be funded regularly using standing instructions. The customer instructs the bank to credit the RD account first from linked savings or the current version every month.
- Unlike other monthly investment schemes such as mutual fund systematic investment plans, these deposits provide assured returns.
An RD can assist individuals in achieving their short and long-term goals of saving money to purchase something shortly, whether it is as simple as the latest phone or as large as a lump sum to pay as a down payment on a home loan. These benefits of rd investment provide individuals with excellent and guaranteed returns, and it is a must-have for those seeking safe investment opportunities.
Who is eligible to start a recurring deposit account?
Any Indian citizen, resident or non-resident, and any minor above the age of 10 who can present proof of identity. Any minor under the custody of a natural parent or legal guardian under the age of ten. Any corporation, business, sole proprietorship, or commercial enterprise, including government entities, can open.
Is it possible to deposit additional funds in RD?
Individuals, unlike Fixed Deposits, can deposit a fixed amount with their bank or post office every month for a predetermined duration. It's vital to keep in mind that once an RD account is opened, the deposit amount and duration cannot be changed.