For most Indians, a recurring deposit is one of the most trusted avenues of investment. Popular among varied age groups, an RD is preferred by people from different economic backgrounds. 

 

But is it really as good as it sounds? Is an RD the best way to accumulate a corpus or a big amount of money? To learn about the features, advantages and disadvantages of a recurring deposit account, read on.

What is a Recurring Deposit?

Before delving into the recurring deposit pros and cons, take the time to understand how RDs work. A recurring deposit is a unique term deposit (FD) where you make a fixed amount of investment at regular intervals for a fixed tenor. 

 

At the end of the tenor, you get the entire invested amount along with any interest that you have earned over the tenor. If you have an upcoming expenditure or if you wish to accumulate a lump sum savings amount, you can opt for a recurring deposit. 

 

It helps you make small yet systematic investments and achieve your short-term goals easily. Almost all banks and NBFCs, as well as post offices, offer the RD facility to help you easily save regularly. 

 

To make an informed decision, understanding how a recurring deposit works is important but knowing the features is equally important. Given below is a table that outlines the top recurring deposit features that make it a great investment option.

Features of a Recurring Deposit

Details

Rate of interest

Goes up to 8.50% per annum

Minimum deposit

Can be as low as ₹100 (However, this varies for each issuer)

Tenor of investment

Can start at 6 months and go up to 10 years

Partial withdrawal

Depends on the issuer, generally not allowed

Premature closure

Typically allowed, subject to a nominal penalty

How to Open a Recurring Deposit Account?

Now that you know the key features of a recurring deposit account, let’s take a closer look at the steps involved in opening an RD account. 

  • Step 1: Choose the Financial Institution

Decide whether you want to open a recurring deposit account with a bank, a Non-Banking Financial Company (NBFC) or the Post Office. 

  • Step 2: Visit the Nearest Branch

Then, locate the nearest branch of the bank, NBFC or Post Office and pay a visit to the branch office in person. 

  • Step 3: Fill out the Account Opening Form

Once you’re at the branch, request an official for the RD account opening form and fill in the details of your RD account. You can enter the deposit amount, the tenor and other such details here.

  • Step 4: Submit the Form and the KYC Documents 

After filling in the form completely, attach any KYC documents that may be required, along with a cheque or DD for the first deposit instalment, and submit the form at the branch. 

 

Alternatively, if you have an account with the bank or NBFC, you can directly log in to the internet banking portal and open an RD online. 

 

Keep in mind that before you start investing, you should consider the key advantages and disadvantages of recurring deposit.

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Advantages of a Recurring Deposit

Here are the top advantages of recurring deposits that you can enjoy:

1. Easy Eligibility

It is very easy to qualify for opening an RD account because the eligibility criteria are typically relaxed. You can easily start saving in an RD if you meet any of the following criteria.

  • You are an Indian resident

  • You can be a citizen above 60 years

  • You are a minor with a guardian

  • You are a non-resident Indian (NRI)

2. Option to Avail a Loan 

Many issuers give you the option to avail a loan against your RD. Typically, the maximum amount of loan that you can avail is up to 90% of your investment. This is one of the major advantages of recurring deposits, as it enables you to get quick access to funds.

3. Disciplined Savings

From an early age and stage, you can instil the habit of saving in yourself or your children by including a recurring deposit in your investment portfolio. This is because RDs require monthly investments and help you develop the habit of saving systematically.

4. Low Minimum Investment Amount 

Even someone with the most modest income can open a recurring deposit. While the minimum amount can vary from one institution to the other, RD accounts can generally be opened with an amount as low as ₹100 a month. 

5. Flexible Tenor

Among the many advantages of recurring deposits is that you can easily save for your short-term goals that may be coming up in the next 6 to 12 months.

6. No Limit on the Number of RDs

As an account holder, you have the option of opening any number of RDs. There is no limit on the number of recurring deposit accounts you can hold. 

7. High Liquidity

In case of any emergency, you can easily and quickly withdraw the money that you have saved up. Just bear in mind that you would have to pay a small penalty for a pre-withdrawal. That said, it is typically not advisable to withdraw unless absolutely necessary.

8. Low-Risk Savings

Unlike other investment products such as stocks, mutual funds etc., recurring deposits are a very safe and risk-free option. With rates not affected by market fluctuation, you can rest assured that you will receive returns at the end of your investment tenor.

9.  Lucrative returns

This is one of the major advantages of a recurring deposit account. The interest rates on recurring deposits can go up to 8.50% p.a., depending on investment terms and issuer. These rates directly influence your returns and can help ensure that you earn great returns and grow your wealth.

10. Achieve financial goals 

At the base of any investment is accumulating wealth to fund a certain goal, long-term or short-term. One of the major advantages of recurring deposits is that with lucrative returns and flexible tenors, you can work toward any goals realistically. 

11. Digital Process

With digitisation, investing in an RD can also be done online. You can also manage it entirely through digital facilities. Most issuers have an app that allows you to track your investment anywhere and anytime, making it one of the major advantages of recurring deposits.

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Disadvantages of a Recurring Deposit

Although the list of advantages is long, it is important to know the recurring deposit’s  disadvantages. This will give you a holistic idea and enable you to make an informed decision. Here is a tabular overview of the few recurring deposit disadvantages you should know. 

Parameters

Details

Penalty on premature withdrawal

If you withdraw the amount before the term is over, you will have to pay a penalty.

Lack of flexibility

Once the RD account is opened, you cannot make changes to the instalment amount or the tenor.

Moderate interest rates

The interest you earn on your recurring deposit may be lower when compared to other investment options.

Monthly commitment

By definition, recurring deposits require you to invest on a monthly basis for the chosen tenor. Missing an instalment can attract penalties.

Withdrawal during the lock-in/ lock-up period

Like most investment avenues, RDs also have this period. Withdrawing during this period is not permissible, and in case you do withdraw, the issuer may not give you any returns.

Conclusion

These are the key pros and cons of recurring deposit accounts. With these aspects in mind, you can make an informed investment decision and plan your recurring deposits. This way, you optimise returns and earn guaranteed interest while systematically saving up for the future. 

Disclaimer

The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort. 

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products. 

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FAQs on Recurring Deposits

Is investing in recurring deposits good?

Yes, if you cannot make a lump sum investment and want a safe investment avenue, RDs are a great option. Monthly instalment is one of the recurring deposit features that make it a popular option.

What are the disadvantages of recurring deposits?

A few recurring deposit disadvantages are that withdrawal before the end of the lock-in period is not permissible and there is a nominal penalty after that. 

Are there any risks in recurring deposit investment?

No, generally speaking, RDs are safer as your investment interest rate is unaffected by market fluctuations. This is also one of the major advantages of a recurring deposit account.

Is nomination available in recurring deposits?

Yes, the nomination facility is one of the major advantages of recurring deposits, as it allows you to ensure that your loved ones get the funds in your absence.

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