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Looking for a secure and effortless way to grow your savings? A Recurring Deposit (RD) is a trusted, low-risk investment that offers assured returns through flexible monthly contributions. With tenures ranging from 6 months to 10 years, RDs—offered by banks, NBFCs, and post offices—help you build wealth steadily without requiring a lump sum investment.
Features of Recurring Deposit
RD accounts offer fixed interest at regular intervals until maturity. Once the tenure ends, you receive the total amount, including both your deposits and the accumulated interest.
| Features | Applicability |
| Rate of Interest | 5% – 8% (Varies from bank to bank) |
| Minimum Investment | Rs 10 |
| Tenure of Investment | 6 Months – 10 Years |
| Interest Calculation Frequency | Usually Every Quarter |
| Premature Withdrawal | Not Allowed |
| Early Account Closure | Allowed with Penalty |
RD Returns & Interest Earned
Most banks and financial institutions offer competitive interest rates, typically ranging between 5% and 8%, with an average of 6% to 7%. Senior citizens receive preferential rates, usually 0.25% to 0.75% higher than standard rates. You can use an RD Calculator to estimate potential returns.
Types of Recurring Deposits
RD for Senior Citizens: Higher interest rates and quarterly compounding make this a reliable income source for those without a regular salary.
RD for NRIs/NREs: NRIs can invest in RDs through NRE or NRO accounts, benefiting from stable returns with small monthly contributions.
Minor RD Accounts: Managed by a parent or guardian, these accounts help build a savings habit from an early age, with returns comparable to regular RDs.
Withdrawal Rules for Recurring Deposits
Although RDs are meant for disciplined savings, withdrawals before the tenure ends come with conditions:
Premature Withdrawal
- Earns interest only for the deposit period, with a 1% penalty.
- If withdrawn before three months, no interest is paid—only the deposit is refunded.
- Makes you ineligible for additional incentives.
Partial Withdrawal
- Generally not allowed by banks.
- Some banks offer loans or overdrafts against RD balances.
- Post office RDs permit partial withdrawals after one year.
Key Benefits of RD Investment
- Helps Achieve Financial Goals
Assured returns make RDs ideal for funding education, home renovation, travel, and weddings.
- Encourages Savings Discipline
Fixed monthly contributions instill financial discipline, making it useful for salaried individuals.
- Protection from Interest Rate Fluctuations
Rates remain fixed for the entire tenure, ensuring stable returns despite market changes.
- Tax Considerations
- RD interest is taxable under your income slab.
- If earnings exceed Rs 10,000 per year, 10% TDS applies.
- Form 15G/15H can be submitted to avoid TDS if income is below the taxable limit.
Conclusion
A Recurring Deposit is a secure and disciplined investment offering steady returns and financial stability. With fixed interest rates, flexible tenures, and tax benefits, it is an excellent savings tool for both short-term needs and long-term wealth creation.
Recurring Deposit FAQ’s
1. Can I change my monthly RD installment after opening the account?
No, the amount remains fixed for the entire tenure. To modify it, you need to open a new RD account.
2. Do all banks offer the same RD interest rate?
No, rates vary across banks and institutions but generally range between 5% and 8%.
3. Can I withdraw my RD amount before maturity?
Yes, but a 1% penalty applies, and you may lose additional incentives. Some banks offer loans against RDs instead.
4. Is RD interest taxable?
Yes, it is fully taxable under your income slab. If interest earnings exceed Rs 10,000 per year, 10% TDS is deducted unless you submit Form 15G/15H.
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