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

1. Types of Recurring Deposits

  • Regular RD Accounts:

    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.

  • RD Accounts for Minors:

    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.

  • RD Accounts for Senior Citizens:

    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.

  • NRE/NRO RD Accounts:

    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.

2. Top 15 Banks and Their RD Interest Rates

Bank Name

Regular RD Interest Rates (% p.a.)*

Senior Citizen RD Interest Rates (% p.a.)*

DBS Bank

2.50-5.50

2.50-5.50

Citibank

3.00-3.25

3.50-3.75

Indian Bank

3.95-5.25

4.45-5.75

Bank of Baroda

4.50-5.70

5.00-6.20

HDFC Bank

4.50-5.75

5.00-6.25

ICICI Bank

4.75-6.00

5.25-6.50

UCO Bank

4.95-5.00

5.25-5.50

Kotak Bank

5.00-5.50

5.50-6.00

Bandhan Bank

5.40-6.75

6.15-7.50

Union Bank of India

5.50-5.90

5.50-5.90

Andhra Bank

5.50-5.80

6.00-6.30

Punjab National Bank

5.50-5.80

6.00-6.30

IDBI Bank

5.75-5.90

6.25-6.40

Indian Overseas Bank

5.75-6.80

6.25-7.30

Axis Bank

6.05-6.50

6.55-7.00

Post Office

5.80

5.80

*Interest rates are subject to change with time.

3. How to Open an RD Account?

You can open an RD account either online or offline at the bank branch.

  • Online Application:
    1. Log into your net banking or mobile banking account.
    2. Select the ‘Open an e-RD Account’ option on the dashboard.
    3. Specify the account number from which you wish the instalment to be debited, the instalment amount you prefer, and the period. Check the interest rate applicable and mention the nominee for the account proceeds.
    4. Click on the checkbox to confirm that you agree to all the terms and conditions after checking the maturity amount.
    5. Submit the application. A confirmation message will be displayed, and an email will be sent to the registered email address with the RD receipt. The set amount will get debited from the specified amount.
  • Offline Application:
    1. Visit the nearest bank branch where you already have a savings account.
    2. Fill up the RD application form and specify the details, such as instalment amount, mode of payment, deposit tenure, nominee, and other details.
    3. Pay the money for the first instalment through a cheque/cash.
    4. The bank representative will process your application within the stipulated time.

4. Features of Recurring Deposit

  • Open an RD account by investing a minimum of Rs.100 per month.
  • The minimum deposit tenure for RD accounts is six months and can go up to 10 years.
  • RD accounts offer an interest rate higher than that of a savings account.
  • Generally, banks compound the interest once every quarter.
  • RD accounts come with a lock-in period of 30 days-3 months subject to the bank’s discretion. Withdrawal within the lock-in period will not fetch any interest.
  • A single account holder can open any number of RD accounts.
  • Advance deposits are allowed by a few banks and by the Post Office.
  • Partial withdrawals are not allowed.
  • Premature withdrawals are allowed subject to a penalty.
  • Make monthly payments instead of a lump sum payment as in the case of fixed deposits.
  • Set standing instructions so that the instalments are automatically deducted from your savings account without the need for manual interaction.
  • Senior citizens may get an additional 0.5% interest rate.
  • RD accounts can be opened in the name of minors; however, only under the supervision of parents/guardians.
  • Overdraft or loan facilities are available on RD balance.

5. Eligibility Criteria to Open an RD Account

  • Resident Indians
  • Senior citizens
  • Minors under the supervision of parents/guardians
  • Non-resident Indians

6. Tax Benefits/Liabilities on RD

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.

7. Advantages and Disadvantages of RD

Advantages of RD Accounts

  • Inculcates the habit of saving.
  • Penalty is not imposed if you miss the RD instalment for a month.
  • Expect an interest rate that is higher than that of a savings account.
  • It takes as low as Rs.100 to start a recurring deposit account.
  • Hassle-free RD account opening process, especially so if you already have a savings account with the bank.
  • Simple documentation process. Existing members need not submit any documentation mostly.
  • Great savings option to attain your short-term goals.

Disadvantages of RD Accounts

  • Withdrawing within the lock-in period does not give any returns.
  • Partial and premature withdrawal comes with a penalty and is subject to certain criteria.
  • Instalment amount is fixed.
  • Interest rate is lower as compared to other investment products.

8. RD Calculator

Use our RD calculator to figure out the returns you can earn by investing a certain amount over a certain period.

9. SIP vs RD

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.


Frequently Asked Questions (FAQs)

Can I deposit different amounts into my RD account every month?
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.
What happens if there is a change in the interest rate while I have opened an RD account?
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.
Does all RD accounts offer a loan/overdraft facility?
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.
Does Post Office RD work the same way as any other bank-offered RD?
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.

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