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.
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 |
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. |
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.
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.
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.
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.
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.