Recurring Deposit (RD)
A recurring deposit (RD) is a type of term deposit offered by banks and financial institutions that allows individuals to save a fixed amount of money regularly over a predetermined period.
Features of Recurring Deposits:
1. Regular Savings:
RDs are ideal for individuals who want to save a fixed amount of money on a regular basis.
It encourages disciplined savings as customers deposit a predetermined amount monthly for a fixed duration.
2. Fixed Tenure:
Recurring deposits have a fixed tenure, typically ranging from six months to ten years, depending on the bank or financial institution. The depositor chooses the duration at the time of opening the RD account.
3. Fixed Deposit Amount:
While the tenure is fixed, the deposit amount can vary. Customers decide on the monthly deposit amount when opening the RD account. This amount remains constant throughout the tenure of the RD.
4. Interest Rates:
Banks offer interest rates on RDs similar to fixed deposit rates, but these rates might vary based on the tenure of the RD. The interest rates are usually compounded quarterly or annually.
5. Maturity Amount:
At the end of the RD tenure, the depositor receives the maturity amount, which includes the total of all monthly deposits made, along with the accrued interest.
6. Tax Implications:
Interest earned on recurring deposits is taxable as per the depositor’s income tax slab.
TDS (Tax Deducted at Source) is applicable if the interest earned exceeds a certain threshold, currently set at ₹40,000 for individuals below 60 years old and ₹50,000 for senior citizens.
7. Premature Withdrawal:
While recurring deposits are meant for regular savings, some banks allow premature withdrawal of RDs. However, penalties or charges may apply, and the interest rate payable might be lower than the contracted rate.
8. Renewal Options:
After maturity, some banks provide options to renew the RD for another term automatically or allow the depositor to withdraw the maturity amount.
9. Nomination Facility:
Like other banking instruments, RD accounts offer the nomination facility, enabling depositors to nominate beneficiaries for the deposit in case of their demise.
10. Flexibility:
RDs offer flexibility in terms of deposit amounts, tenure, and frequency of deposits, making it suitable for various financial goals, such as saving for a vacation, education, or retirement.
Recurring deposits are a popular savings option due to their simplicity, disciplined savings approach, and relatively higher interest rates compared to regular savings accounts.
However, individuals should carefully consider the terms, interest rates, and tax implications before opening an RD account.
FAQ’s on Recurring Deposit (RD):
1. Are RD tax free?
Ans: No, Recurring Deposits (RDs) are not tax-free. The interest earned on recurring deposits is taxable as per the depositor’s income tax slab.
Tax Deducted at Source (TDS) may apply if the interest earned exceeds a certain threshold, which is currently set at ₹40,000 for individuals below 60 years old and ₹50,000 for senior citizens.
2. Are recurring deposit good?
Ans: Recurring deposits can be a good savings option for individuals looking for a disciplined and systematic way to save money over a fixed period. They offer flexibility, steady returns, and are relatively low-risk.
However, their interest rates might be lower compared to other investment options, and the tax implications should be considered.
Overall, recurring deposits are suitable for short-to-medium-term goals and for those who prefer a hassle-free savings method.
3. Is recurring deposit taxable?
Ans: Yes, interest earned on recurring deposits is taxable as per the depositor’s income tax slab.
TDS (Tax Deducted at Source) is applicable if the interest earned exceeds a certain threshold. Currently set at ₹40,000 for individuals below 60 years old and ₹50,000 for senior citizens.
4. Is recurring deposit a good investment?
Ans: Recurring deposits can be a good investment for individuals looking for a disciplined savings option with a fixed tenure and relatively stable returns.
They offer simplicity, regularity, and flexibility, making them suitable for short to medium-term financial goals.
However, their returns might not beat inflation, and tax implications should be considered.
Overall, recurring deposits are a conservative investment choice suited for those prioritizing capital preservation and steady growth.
5. Can recurring deposit be withdrawn before maturity?
Ans: Yes, recurring deposits can usually be withdrawn before maturity, but there may be penalties or charges associated with early withdrawal.
Additionally, the interest rate payable on premature withdrawal might be lower than the contracted rate.
6. Can recurring deposit save income tax?
Ans: Recurring deposits do not offer any tax benefits or deductions under the Income Tax Act.
The interest earned on recurring deposits is taxable as per the depositor’s income tax slab. TDS (Tax Deducted at Source) may apply if the interest earned exceeds a certain threshold.
Therefore, recurring deposits do not provide any income tax-saving benefits like some other investment options such as PPF, ELSS, or tax-saving fixed deposits.
7. Can fixed deposit be withdrawn online?
Ans: Yes, fixed deposits can often be withdrawn online, provided the bank offers online banking services and the fixed deposit is linked to the depositor’s online account.
Typically, the process involves logging into the online banking portal, selecting the fixed deposit account, specifying the withdrawal amount, and confirming the transaction.
However, some banks may have restrictions or require additional steps, such as providing a notice period or visiting the bank branch for certain withdrawals.
8. Can fixed deposit be transferred to another person?
Ans: Yes, fixed deposits can typically be transferred to another person through a process known as a “FD transfer” or “FD assignment.”
This involves filling out the required forms provided by the bank, specifying the details of the transfer, and obtaining necessary signatures.
The transferee (recipient) must fulfill the bank’s eligibility criteria for opening a fixed deposit account. Once the transfer process is complete, the ownership of the fixed deposit is transferred to the new recipient.
9. What is recurring deposit?
Ans: A Recurring Deposit (RD) is a type of savings account offered by banks and financial institutions where individuals deposit a fixed amount of money regularly, typically on a monthly basis, for a predetermined period.
RDs encourage disciplined savings and offer fixed interest rates, with the accumulated amount along with interest paid out upon maturity.
10. Which recurring deposit is best?
Ans: Determining the “best” recurring deposit depends on factors like interest rates, tenure options, penalties, and customer service.
However, some banks in India that often offer competitive RD rates and good service include State Bank of India (SBI), ICICI Bank, HDFC Bank, Axis Bank, and Punjab National Bank (PNB).
It’s advisable to compare interest rates, tenure options, and terms and conditions offered by different banks before choosing the one that best suits your needs.
11. Which gives more return FD or RD?
Ans: Fixed Deposits (FDs) generally offer higher returns compared to recurring deposits (RDs).
This is because FDs involve a lump-sum deposit for a fixed tenure, allowing banks to offer higher interest rates.
On the other hand, RDs involve regular monthly deposits over a specified period, which typically yields lower interest rates.
Therefore, if maximizing returns is the priority and a lump sum is available for investment, FDs are usually prefer over RDs.
12. Recurring Deposit for one year.
Ans: A Recurring Deposit (RD) for one year is a savings option where you deposit a fixed amount of money into a bank or financial institution on a monthly basis for a duration of one year.
At the end of the one-year period, you receive the total of all monthly deposits made, along with the interest accrued on those deposits, as the maturity amount.
RDs for one year provide a simple and disciplined way to save money and earn interest over a short-term period.
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