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RDs or recurring deposits are an investment tool which allows investors to make regular monthly investments and save money for the long term. Investors can choose the tenure of the deposit and the minimum monthly payment they wish to make according to their convenience. RD schemes are generally more flexible than fixed deposit schemes and are typically preferred by those who want to start an account to save money and build a rainy-day fund.
|Interest Rate||4% to 8%|
|Minimum Deposit Amount||Rs.10|
|Investment Tenure||6 months to 10 years|
|Interest Compound Frequency||Quarterly|
|Partial and Mid-term Withdrawal||Not Allowed|
|Premature Closure||Allowed with charges|
*Post office recurring deposit can be opened with the minimum amount of Rs. 10. *The interest on RD is compounded quarterly.
Almost all the banks in India offer RD and the rates are highly competitive. Interest rates on RD schemes are in the range of 6% to 7%, and the interest depends on the market trends prevalent at the time of creating the account. The tenure of an RD can vary from 7 days to 10 years. For this reason, RD schemes make an excellent choice for salaried individuals who earn a fixed income every month and can invest a regular amount every month.
The CBDT notifies Form 12BBA, a declaration form, to be submitted by the eligible senior citizens to the specified banks to take relief from filing the ITR.
In Budget 2021, it has been proposed to exempt senior citizens from filing income tax returns if pension income and interest income are their only annual income sources. Section 194P has been newly inserted to enforce that banks deduct tax on senior citizens of more than 75 years of age who have a pension and interest income from the bank.
|Bank||Normal Citizens||Senior Citizens|
|State Bank of India||6.50% – 6.95%||7% – 7.45%|
|HDFC Bank||5.75% – 6.90%||6.25% – 7.40%|
|ICICI Bank||6.25% – 7.10%||6.75% – 7.60%|
|Axis Bank||6.50% – 7%||7% – 7.50%|
|Kotak Mahindra Bank||6.25% – 6.75%||6.75% – 7.25%|
|IDFC Bank||6.75% – 7.25%||0%|
|Bank of Baroda||6.50% – 7%||6.50% – 7%|
|IDBI Bank||7% – 7.15%||7.50% – 7.65%|
|Indian Bank||5.25% – 6.50%||5.75% – 7%|
|PNB Bank||6.70% – 7%||7.20% – 7.50%|
|Allahabad Bank||6.50% – 7%||0%|
|Andhra Bank||6.25% – 7%||6.75% – 7.50%|
|Bank of India||6.75% – 7%||7.25% – 7.50%|
|Canara Bank||7% – 7.35%||7.50% – 7.85%|
|Central Bank||7% – 7.15%||7.50% – 7.65%|
|Union Bank of India||7% – 7.25%||7.50% – 7.75%|
|Corporation Bank||7% – 7.10%||7.50% – 7.60%|
|RBL Bank||7% – 7.85%||7.50% – 8.35%|
|Syndicate Bank||6% – 6.80%||6.50% – 7.30%|
Here’s another example which shows how SIPs provide superior returns as compared to RDs. Let us assume that you invest Rs.10,000 every month in your RD account for 15 years. RDs generally offer 7%-8% interest rates. Using 8% for RD calculations, you will end up with Rs.34.6 lakh from your RD. Now, if you were to put this money in a SIP with an average return of 15%, you would earn Rs.66.8 lakh from your SIP. The total investment in both cases remains the same, but you earn more from SIP than from RD.
If you are comfortable making regular investments, you can also look towards investing in mutual fund SIPs. A SIP or Systematic Investment Plan uses your monthly deposit amounts to invest in mutual funds that return a higher interest rate than normal RD schemes. On average, a SIP would provide returns at 12%-18%, which is significantly higher than RD.
Similar to other personal tax-saving and investment instruments, recurring deposit schemes also attract taxes. A TDS of 10% is deducted on the returns accrued from an RD if the total interest exceeds Rs.10,000 in a single financial year. Compare this to the SIP scheme, and you can see that SIPs are more beneficial for the long term. Since long-term gains from equity are tax-free, any SIP which invests in ELSS (Equity Linked Mutual Funds) is also tax-free after one year.
Interest on RD is compounded quarterly, in most banks.
The formula for this is : M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )
M = Maturity Value
R = Monthly Installment
n = Number of quarters
I = Rate of interest/400
So, if you invest in RD and put in Rs. 5,000 per month for a year, at the interest rate of 8%, your total value will be calculated as:
R = 5000 n = 4 (one year has four quarters)
I = 8.00/400 M = Rs. 62, 647 in one year
There are many RD schemes available in the market. There are a couple of criteria you can use to choose between these schemes: Check which bank offers you the highest interest rate for the deposit amount and the tenure that you have fixed. Check for banks with the lowest penalty rates for premature withdrawals. This will ensure that your funds stay liquid and you can withdraw them whenever you need without losing much money.
|Identity Proof||Address Proof|
|PAN card||Telephone bill|
|Voter ID card||Electricity bill|
|Driving licence||Bank statement with cheque|
|Government ID card||Certificate/ID card issued by the post office|
|Photo ration card|
|Senior citizen ID card|
Most banks levy a small penalty on premature withdrawals of funds from RD accounts. However, partial withdrawal of funds is not allowed in many banks.
You can open an RD account with any bank in India if you are the following: An Indian resident or HUF (Hindu Undivided Families). An NRI (through NRO and NRE accounts). A minor (under the guardianship of your parents).
You can choose to close your RD account and use the returns for your personal needs. Or, you can ask your bank to transfer the amount to an FD account where it will reap more dividends.
If you miss several consecutive payments, the bank may choose to close down your RD account. Some RD schemes are also flexible in the way they allow you to make payments anytime during the month.