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A Recurring Deposit (RD) account is an investment tool that allows investors to make regular monthly investments and save money over a specified period. Investors can choose the tenure of the deposit and the monthly payment amount based on 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||2.5% to 7%|
|Minimum Monthly Deposit Amount||Rs.100|
|Investment Tenure||6 months to 10 years|
|Interest Compounding Frequency||Quarterly|
|Partial Withdrawal||Not allowed|
|Premature Withdrawal||Allowed subject to penalty|
A regular RD account is meant for Indian residents aged 18 years or above. The account allows the account holders to deposit a fixed sum in the account once every month over a pre-specified period to earn a fixed interest on the deposit amount. A compound or straightforward interest method will be used for interest calculation based on the account’s tenure.
Such accounts will be opened in the name of individuals below the age of 18; however, this is possible only in their parents or guardians’ supervision. Like the regular RD accounts, a fixed monthly instalment and tenure will be set at the time of opening the account. The returns may be similar or a little higher as compared to the regular RD accounts.
Banks provide dedicated RD accounts for senior citizens, i.e. aged above 60 years. Sometimes, senior citizens get an additional interest on RD as compared to the regular customers. The interest gets compounded every quarter.
Non-Resident Indians (NRIs) can open Non-Resident External (NRE) and Non-Resident Ordinary (NRO) RD accounts. NRIs can earn a good interest and make savings every month through such accounts on income earned outside and inside India.
|Bank Name||Regular RD Interest Rates (% p.a.)*||Senior Citizen RD Interest Rates (% p.a.)*|
|Bank of Baroda||4.50-5.70||5.00-6.20|
|Union Bank of India||5.50-5.90||5.50-5.90|
|Punjab National Bank||5.50-5.80||6.00-6.30|
|Indian Overseas Bank||5.75-6.80||6.25-7.30|
*Interest rates are subject to change with time.
You can open an RD account either online or offline at the bank branch.
Tax may be deducted at source if the interest income earned on recurring deposits across branches exceeds Rs.40,000 per financial year. The limit for senior citizens is Rs.50,000 per financial year.
Taxpayers with the total annual income within the basic exemption limit may submit Form 15G/15H to the bank requesting not to deduct tax at source.
Use our RD calculator to figure out the returns you can earn by investing a certain amount over a certain period.
|Factors||Recurring Deposits (RD)||Systematic Investment Plan (SIP)|
|Investment Scheme||The scheme gives you a fixed rate of returns. Flexible RD schemes are also available.||Freedom to choose between equity and debt funds based on the risk and return appetite.|
|Tenure||Choose a deposit tenure from six months to 10 years.||No fixed tenure for SIP as such. However, the minimum period is six months.|
|Interest Rates||Interest rates vary from 2.5% to 7%. Senior citizens may be offered higher rates.||Interest rates generated by SIP mutual funds have been 12% to 22% for the last 5 to 10 years.|
|Returns||Returns are fixed and will be known at the time of investment.||Returns depend on equity and debt markets, and the fund scheme was chosen; cannot be estimated for sure.|
|Instalment Frequency||RDs include a monthly instalments structure.||SIPs offer flexible instalment plans, i.e. daily, weekly, monthly, and quarterly.|
|Risk Factor||RDs are not prone to risks and are a safe form of investment.||Returns from SIP are variable as they depend on the stock market. There can be a risk of capital.|
|Liquidity||Though RDs are liquid, they will attract fines on premature withdrawal.||SIPs can be closed anytime without any penalty charges.|
|Taxation||RD amount and the interest earned on RDs are not exempt from income tax.||SIP investments and its returns are exempt from tax when invested on ELSS mutual funds.|
No. A regular RD account will not let you deposit different amounts every month. However, some banks offer flexible RD schemes where you can deposit multiple times in a month and varying amounts based on your savings.
The interest rate will be fixed when opening an RD account and will not vary even if the rates fluctuate during the account. Any variation will only apply if you open a new RD account. The rate applicable to an account will not get updated as and when there is a rate change.
Not all RD accounts offered by all banks provide the loan/overdraft facility. Even if they provide, certain conditions may be fulfilled in terms of the tenure of the account, tenure completed, monthly instalment amount, and others. Further, the extent of overdraft or loan may vary from 50% up to 90% based on the bank’s discretion.
Though the basic functionality of the RD accounts offered by Post Office and banks work the same way, there may be differences in certain policies and regulations. For example, the minimum deposit amount for an RD account offered by IDFC Bank is Rs.2,000, while that offered by Post Office is Rs.100.