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Your Guide To Recurring Deposit

by BankingTricks Desk
Published: Last Updated on
Your Guide To Recurring Deposit

What is a Recurring Deposit?

A recurring deposit, otherwise called RD, is a term deposit where customers enjoy three-crease benefits of flexibility, guaranteed returns and liquidity. Unlike a FD, investing in a RD gives one the choice to invest month to month and earn interest as per the rates applicable.

Choice to invest in a recurring deposit in India is provided by banks just as other money related organizations. Whereas investing with a private limited organization may give higher returns, going for a bank will consistently be a safer bet.

Why Choose Recurring Deposit?

Term deposits are considered a generally safe yet profitable investment choice by many. Where fixed deposit, a type of term deposit, is a one-time investment, recurring deposit is perfect for those who have a regular progression of income to be invested.

Consider the accompanying pointers to understand the importance of investing in a recurring deposit:

  1. Flexibility to invest on a month to month premise

Unlike FD, investors can go for regular deposit payment. This is perfect for those who don’t have a major corpus at the present time yet can save a decent measure of money regularly.

  • Higher rate of interest than savings account

Since RD interest rates are identical to the interest rates offered in fixed deposits, as a matter of course investing in a RD fetches higher returns as compared to other bank deposit schemes like savings accounts.

  • Short deposit tenure beginning from mere a half year

Investing in a recurring deposit gives one the choice to go for shorter length of lock-in period. This leads to better liquidity and suits those who need to target their transient objectives efficiently.

  • Guaranteed returns

Recurring deposit is one of the safest investment alternatives in the market. Since there is no market-connecting, so a disturbance in the economy won’t affect investor’s returns. They will earn benefit on the rate promised to them at the time of joining.

Features and Benefits of Recurring Deposit

A recurring deposit earns interest at a pre-specified rate over the period chosen by the investor. The interest will be added to the chief sum at a certain frequency or at development. When the RD matures, investor is paid the real sum invested in addition to the all out interest earned in the entire tenure.

Key features of recurring deposit:

  • Aimed to inculcate a regular propensity for setting aside cash
  • Deposit sums are profoundly affordable, beginning from as low as Rs. 100 per month while it can go up to Rs. 15 lakh (or more for certain banks)
  • Customers may choose from deposit term of a half year to 120 months
  • Earns higher returns than investing in a savings account
  • Credit against deposits can be taken keeping the RD as collateral
  • Premature withdrawals are not allowed

Benefits of investing in a recurring deposit:

  1. Ease of investing month to month
  2. Credit or overdraft facilities available
  3. Investor can nominate someone to receive the development sum, in case they are nowhere to be found
  4. High interest rates identical to FD rates, along these lines making it a lucrative however safe investment alternative for hazard averse investors

Taxation of Recurring Deposit

Much the same as a fixed deposit scheme, interest income earned on recurring deposit is added to the yearly income of the investor. This income is added to the ‘Income from Other Sources’ head and is completely taxable as per the applicable income tax slab.

On the off chance that this income earned from bank or mail station deposits adds up to Rs. 40,000 or less, no tax is levied. Be that as it may, on the off chance that it goes beyond the cutoff, banks charge 10% as TDS (Tax Deducted at Source).

People falling under the 5% income tax slab can file Income Tax Return to guarantee refund. Any individual not liable to pay any income tax ought to submit form 15G to their respective banks in order to maintain a strategic distance from TDS deduction. Senior citizens are liable to submit Form 15H to keep away from TDS deduction.

Please note that the aforementioned forms are to be submitted every money related year for each recurring deposit owned by the person.

Enter the month to month deposit sum, rate of interest and the deposit tenure to check the potential earnings by investing in a recurring deposit.

Documents Required for Opening a RD Account

To open a RD account, customer must keep the accompanying documents ready:

  1. Photo ID evidence (Aadhaar card, PAN card, Passport, etc.)
  2. Address evidence (Any latest Utility bill, Aadhaar card, Ration card, etc.)
  3. PAN card
  4. Application form (properly filled in and signed)
  5. Passport size photographs

Note: This isn’t an exhaustive list.

How to Open a Recurring Deposit?

Any individual can open a recurring deposit account online and offline also. To apply for a recurring deposit online, account holders can visit the official bank website or login to the netbanking entry or mobile banking application and apply for a recurring deposit online.

To apply for a recurring deposit offline, account holders can visit the nearest bank branch or contact customer care for further enquiries/queries.

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