Banks are one of the forms of financial institutions that give users the opportunity to invest, save or take credits as per the requirements. Banks offer services to the users in the form of opening a bank account, obtaining a loan or credit as per the requirements, making use of debit/credit cards, creating FD and recurring deposit accounts, etc.
The facilities which are offered by banks are also filled with numerous advantages like competitive interest rate, flexibility to maintain it, minimum balance requirement, no age bar, etc. These days, apart from opening a savings account like a Paytm Payments Bank savings account or a current account, people are also investing in FDs (Fixed Deposits) and RDs (Recurring Deposits) to save money for the future.
Fixed deposits and recurring deposits are the ways that allow users to save an additional part of their money every month which remains locked for a particular period. After the maturity, the saved amount, along with the interest earned on it is given to the users. It is up to the will of the user to decide the time period to lock the amount.
In this blog, we will discuss what is a recurring deposit, its features, benefits and how to open it.
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. Upon depositing the amount, the user, in return, can earn interest on it. A lot similar to an FD account, recurring deposit account still differentiates itself in the following manner-
- 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 userÂ
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
A recurring deposit account allows one to deposit an amount of money every month for a particular time period, unlike FDs that demand a lump sum amount to be deposited at one go. A recurring deposit account, in return, offers a competitive interest rate to the user. It builds the habit of saving a particular amount of money every month.
Recurring deposit accounts are great to invest in because they offer assured returns on the principal amount. Banks will offer fixed interest rates on the deposited amount, irrespective of the changing market conditions or changes in the bank’s policies.
Tenure to lock
Banks offer the flexibility to lock the recurring deposit’s amount for a particular time period. The basic tenure to lock a recurring deposit account begins from 6 months to 10 years. It is up to the will of the user to either choose a short term, mid-term or long term recurring deposit account.
Minimum amount to deposit
The amount to be deposited in order to open a recurring deposit account varies from bank to bank. Generally, for private sector banks, the minimum amount to be deposited is Rs. 500 whereas public sector banks give users the freedom to create recurring deposit accounts with a minimum of 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
There are banks that offer users the opportunity to acquire a loan against the recurring deposit account. The user can acquire a loan equivalent to 90-95% of the deposited amount. It is to be noted that the percentage to acquire a loan varies from one bank to another.
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 to create a recurring deposit account is 6 months, whereas the maximum tenure can go up to 10 years
- An individual account holder can create multiple recurring deposit accounts
- Partial withdrawal of the amount deposited in a recurring deposit account is not allowed
- In case of withdrawing the money, a penalty has to be paid by the account holder
- Unlike FDs, recurring deposit accounts allow account holders to deposit a particular amount instead of depositing a lump sum amount in one go
- 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 get a higher rate of interest as compared to regular individuals having recurring deposit accounts
- Recurring deposit accounts for minors are also available; however, such accounts require parents’/guardian’s supervision
What are the Types of Recurring Deposit Accounts?
There are various types of recurring deposit accounts that can be chosen as per the requirements of the users and their age factor. Following are the types of recurring deposit accounts that a user can invest in-
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 account for minors
Banks offer the opportunity to open a recurring deposit account for minors who are below the age of 18 years. However, such accounts can be created under the parent’s/guardian’s supervision.
Recurring deposit accounts for senior citizens
There are a number of banks that provide the opportunity for senior citizens to open senior citizen’s accounts comparatively with higher interest rates. Other than that, the overall process, be it the tenure or amount to invest remains the same.
Recurring deposit account for NRI
Banks even allow NRIs to open recurring deposit accounts in India with a chance to receive a good rate of interest. It is advised to connect with the bank to gain more knowledge about recurring deposits account for NRI.
How to Open a Recurring Deposit Account Online?
To open a recurring deposit account online, the following are the steps that are required to be taken by the user-
- Login to the banking mobile application
- Navigate to ‘Open recurring deposit account option’, ‘investment option’ or any other option that is related to opening a recurring deposit account
- Enter the amount you want to deposit, select the tenure and the type of recurring deposit account
- Enter the date you want your money to deduct on
- Click on ‘proceed’ or ‘submit’
How to Open a Recurring Deposit Account Offline?
Following are the options to open a recurring deposit offline-
- Visit your nearest bank branch
- Connect with the banking official and fill the recurring deposit account form and mention all the details like the amount to be deposited every month, the type of recurring deposit account to invest in, tenure, nominee, etc.
- Submit the recurring deposit account application form and the deposit amount
- The banking official will process your recurring deposit account application
Things to keep in mind while 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 if the bank allows partial withdrawal
- Analyze the tenure offered by the bank
Recurring deposit accounts are the safest option to invest in, as they do not get impacted by the market conditions. Also, such an account helps the account holder to save an extra amount of money and get the matured amount along with the earned interest after maturity. Before investing in recurring deposit accounts, it is advised to compare a number of banks, the interest offered by them, their recurring deposit account related policies, etc.