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? Let us discuss all the aspects along with the advantages and disadvantages of a recurring deposit account.
What is a Recurring Deposit?
A recurring deposit is basically a unique term deposit. As a customer, you make a fixed amount (FD) of investment at regular intervals for a fixed period of time. 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. The table below will help you understand the meaning of a recurring deposit better before we go on to discuss the advantages and disadvantages of a recurring deposit account.
Features of a Recurring Deposit |
Details |
Rate of interest |
Generally varies between 5% to 8% |
Minimum deposit |
Can be as low as ₹100 (However, this varies from one bank, NBFC or financial institution to another) |
Tenor of investment |
Can start at 6 months and go up to 10 years |
Partial withdrawal |
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, 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 login to the internet banking portal and open an RD online. However, keep in mind that before you start investing in an RD, you need to be aware of the advantages and disadvantages of a recurring deposit account.
Advantages of a Recurring Deposit
Now that you know the features of a recurring deposit and how to open an RD account, let us take a look at the advantages of recurring deposit accounts in India.
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 the Loan Facility
Many banks and NBFCs give you the option to avail a loan against your recurring deposit. Typically, the maximum amount of loan that can avail is around 80% to 90% of the balance in your account.
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 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
Another advantage 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 break into your investments 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. You can rest assured that you will receive guaranteed returns at the end of a specific tenor.
Disadvantages of a Recurring Deposit
Despite a long list of advantages, make sure you keep the following disadvantages of recurring deposit accounts in mind when choosing to go with an RD.
Parametres |
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 in the instalment amount or the tenor |
Minimal interest rates |
The interest you earn on your recurring deposit may be lower when compared to other investment options |
Conclusion
These are the key advantages and disadvantages of recurring deposit accounts. If you keep these aspects in mind, you can make an informed investment decision and plan your recurring deposits in a smart and sensible manner, so as to optimise your returns and earn guaranteed interest while systematically saving up for the future.
