Recurring deposit accounts enable users to save a portion of their income on a monthly basis. The amount in an RD account is locked for a set period of time. The deposited amount, as well as the interest earned on it, is returned to the account holder upon maturity. It is up to the user to choose the time period for which the amount is locked.
This blog will explain what a recurring deposit is, its features and benefits, and how to open one.
What is a Recurring Deposit Account?
A recurring deposit is a kind of term deposit that allows users with a fixed source of income to deposit a fixed amount of money every month to the recurring deposit account. After depositing the money, the user can earn interest on it. Although recurring deposit accounts and fixed deposit accounts are very similar, they differ in the following ways:
- Unlike Fixed Deposit that requires one to submit an amount for a particular period, a recurring deposit account requires one to submit the amount on a monthly basis for a locked period
- A recurring deposit account encourages people to build their savings by depositing a fixed amount every month for a particular period of time
- The facility to open a recurring deposit account is divided into short term, mid-term and long term periods. As per the chosen term, the interest paid by the bank will be also different
- Banks offer various types of recurring deposits for regular individuals, children, senior citizens, NRIs, etc., however, the interest rate on these accounts changes accordingly
- The tenure to open a recurring deposit account might vary from bank to bank
- Banks offer the flexibility to close recurring deposit account; however, a penalty has to be paid by the user
What are the Benefits of a Recurring Deposit Account?
Listed below are some of the top benefits of a Recurring deposit account-
Financial facility to save money
In contrast to FDs, which require a lump sum deposit, a recurring deposit account allows you to deposit a set amount of money every month for a set period of time. In exchange, the user receives a competitive interest rate on a recurring deposit account. It builds the habit of saving a particular amount of money every month.
Recurring deposit accounts are ideal for investing because they provide guaranteed returns on the principal amount. Banks offer fixed interest rates on deposits regardless of changing market conditions or changes in the bank’s policies.
Tenure to lock
Banks allow you to lock in the amount of your recurring deposit for a specific time period. The standard term for locking in a recurring deposit account ranges from 6 months to 10 years. It is up to the user to select a short-term, mid-term, or long-term recurring deposit account.
Minimum amount to deposit
The minimum deposit required to open a recurring deposit account varies from bank to bank. In general, the minimum deposit amount for private sector banks is Rs. 500, whereas public sector banks allow users to open recurring deposit accounts with as little as Rs. 100.
Banks give the ease to close recurring deposit accounts and withdraw the deposited amount in case of need or urgent requirement. However, the user is still required to pay a minimal penalty to close the recurring deposit account before maturity. It is to be noted that there are banks that do not allow the partial withdrawal facility.
Loan against deposit
Some banks provide users with the option of obtaining a loan against their recurring deposit account. The user can obtain a loan equal to 90-95 percent of the amount deposited. It should be noted that the percentage required to obtain a loan varies from bank to bank.
What are the Features of a Recurring Deposit Account?
There are multiple features of a recurring deposit account that make it a good option to invest in-
- An account holder can create a recurring deposit account by investing a minimal amount of Rs. 500 per month
- The minimum tenure for opening a recurring deposit account is six months, with a maximum tenure of ten years
- A single account holder can set up multiple recurring deposit accounts
- It is not possible to withdraw a portion of the money deposited in a recurring deposit account
- The account holder must pay a penalty to withdraw the pre-matured amount from the Recurring deposit account
- Unlike FDs, recurring deposit accounts allow account holders to deposit a specific amount rather than a lump sum amount all at once
- The automatic amount deduction helps in deducting a particular amount every month, instead of manually adding an amount to the recurring deposit account
- Senior citizens earn a higher rate of interest than regular people who have recurring deposit accounts
- Minors can open recurring deposit accounts, but they must be supervised by their parents or guardians
What are the Types of Recurring Deposit Accounts?
There are various types of recurring deposit accounts that can be chosen based on the needs of the users and their age. The following are the different types of recurring deposit accounts in which a user can invest:
|Regular recurring deposit account||A regular recurring deposit account is meant for users who are above the age of 18 years with a regular source of income to deposit the amount.|
The users are eligible to earn competitive interest on the deposited amount from the banks.
The interest rates; however, depend upon the tenure chosen by the user and the deposited amount.
|Recurring deposit accounts for minors||Banks allow minors under the age of 18 to open recurring deposit accounts.|
Such accounts, however, can be created with the permission of the parent/guardian.
|Recurring deposit accounts for senior citizens||There are a number of banks that offer senior citizens the opportunity to open senior citizen’s recurring accounts with higher interest rates. Besides, the overall process, whether it’s the duration or the amount to invest, remains the same.|
|Recurring deposit account for NRI||Banks even allow NRIs to open recurring deposit accounts in India with the possibility of earning a high rate of interest.|
It is recommended that you should contact the bank to learn more about NRI recurring deposits accounts.
How to Open a Recurring Deposit Account Online?
The following are the steps that must be taken by the user to open a recurring deposit account online:
- Log in to the banking mobile app
- Navigate to the ‘Open recurring deposit account option,’ ‘investment option,’ or any other option related to the opening of a recurring deposit account
- Enter the amount to be deposited, then choose the tenure and type of recurring deposit account
- Enter the date you want your money deducted and then click ‘proceed’ or ‘submit.’
How to Open a Recurring Deposit Account Offline?
The options for opening an offline recurring deposit are as follows:
- Pay a visit to your local bank
- Connect with a banking official and fill out the recurring deposit account form, including all of the details such as the amount to be deposited every month, the type of recurring deposit account to invest in, tenure, nominee, and so on
- Submit the application form for a recurring deposit account as well as the deposit amount
- Your application for a recurring deposit account will be processed by a banking official
Things to Consider When Opening a Recurring Deposit Account
Before investing an amount to create a recurring deposit account, it is important to keep the following things in mind-
- Always check the interest rate offered by the bank on the types of recurring deposit accounts. It is to be noted the amount of interest offered by the bank depends upon the tenure, type of RD account, amount to be deposited, etc.
- The tenure to lock a recurring deposit account varies from bank to bank. There are banks that offer short, mid-term and long term recurring deposit account options, whereas, there are also banks that do not offer short/mid-term recurring deposit account options
- Check to see if your bank allows partial withdrawals
- Examine the bank’s tenure offer
Recurring deposit accounts are the safest way to invest because they are unaffected by market conditions. Furthermore, such an account allows the account holder to save extra money and receive the matured amount as well as the earned interest after maturity. Before investing in recurring deposit accounts, it is advisable to compare a number of banks, their interest rates, recurring deposit account policies, etc.