Recurring Deposits: A Smart Way to Grow Your Savings Gradually

What Is a Recurring Deposit?

A Recurring Deposit, commonly referred to as RD, stands as a distinctive term-deposit option made available by Indian Banks. This investment option allows investors to engage in regular deposits and yield satisfactory returns on their invested capital. Through its combination of regular deposit contributions and interest accrual, RDs offer investors a level of flexibility and simplicity in their investment endeavours.

Amidst the realm of low-risk investment instruments that offer moderate returns, the Recurring Deposit emerges as a popular investment option in the country. This avenue extends the benefit of adaptability to customers, allowing them to select their preferred investment amount and tenure, coupled with a range of additional perks.

Take note that RDs differ from Fixed Deposits (FDs). While FD Account holders invest a lumpsum, RD Account holders can choose to invest a fixed sum each month, concurrently earning considerable interest on the accumulated amount. Hence, RDs serve as an advantageous dual-purpose tool for saving and investing.

Most leading banks in India offer Recurring Deposit Accounts with an investment term from 6 months to 10 years. This enables you to select a term tailored to your specific requirements. Nonetheless, the determined RD interest rate remains constant throughout the tenure, and upon maturity, you receive a lump sum that includes both the periodic investments and the accumulated interest.

Hence, when you do not have a substantial lump sum readily available to fulfil your short-term objectives, you can consider allocating a modest portion of your earnings to the RD Account on a monthly basis that can effectively fulfil your investment objective.

[Read: SIP v/s RD: Which Is a Better Investment Option?]

[Read: Is Fixed Deposit a Worthy Investment Option for You?]

[Read: 7 Things to Consider Before Investing in Fixed Deposits]

[Read: How to Secure Your Savings And Grow Wealth with High Interest Rate Fixed Deposits]

[Read: Fixed Deposits vs Debt Funds: Which Is a Better Investment Option]

[Read: 7 Things Millennials Should Consider Before Investing in a Fixed Deposit]

[Read: Premature Withdrawal of Fixed Deposits: Why You Should Avoid Breaking FDs]

[Read: Flexi Fixed Deposit | Features And Benefits | How Does It Work?]

What Are the Latest RD Interest Rates?

Here are the latest RD interest rates offered by some of the leading banks in India:

What Are the Features of Recurring Deposits?

• Recurring Deposits instil a consistent savings practice among individuals.

• The deposit duration spans a minimum of six months, extending up to a maximum of 10 years.

• Interest rates are on par with those offered for Fixed Deposits. The Recurring Deposit Interest Rates vary from bank to bank and depend upon the recurring deposit term.

• Senior citizens are often offered a 0.5% additional interest rate.

• You receive a lump sum amount back at the end of the recurring deposit term.

• The minimal deposit requirement often varies from one bank to another, allowing for investments as low as Rs 500 per month.

• While premature withdrawals are possible, they are subject to the bank's terms and conditions. Banks typically pay 0.5% to 1% less at the prevailing interest rate on the date of deposit for the duration the deposit remained with the bank.

• A Recurring Deposit can be systematically funded through Standing Instructions, typically initiated by customers instructing the bank to transfer a set amount into the RD account each month from their Savings or Current Account.

What Are the Types of Recurring Deposits?

1. Regular RD Accounts:

A Standard RD Account is tailored for Indian residents aged 18 years or older. This account permits depositors to contribute a fixed amount into the account on a monthly basis throughout a predetermined duration, yielding a consistent interest on the deposited sum.

2. RD Accounts for Minors:

These accounts can be opened in the names of minors (individuals under 18 years of age) under the guidance of their parents or legal guardians. Similar to Regular RD Accounts, a predetermined monthly instalment and tenure are set at the time of account opening.

3. RD Accounts for Senior Citizens:

Financial institutions offer specialised RD Accounts for Senior Citizens, i.e., those aged 60 and above. Generally, senior citizens receive an additional interest rate of 0.5% on RDs compared to regular customers.

4. NRE/NRO RD Accounts:

Non-Resident Indians (NRIs) have the option to open Non-Resident External (NRE) and Non-Resident Ordinary (NRO) RD Accounts. NRIs can accrue favourable interest rates and build monthly savings through these accounts.

Why Is Investing in Recurring Deposits a Smart Investment Approach?

First and foremost, Recurring Deposits facilitate the automation of your regular investments. You contribute the monthly sum you wish to set aside and initiate your investment journey. This predetermined sum is automatically debited from your account every month and directed towards investment. In contrast to Fixed Deposits, RDs provide interest that compounds quarterly. Consequently, the interest accrued in the initial months gains additional value as time progresses.

However, take note that the FDs and RDs are not completely comparable. RDs aren't intended to replace Fixed Deposits or short-term debt funds. You can open RD Accounts with any bank where you maintain an active Savings Account. The latest RD Interest Rates surpass typical Savings Account rates. You can choose the duration of your investment and streamline the process through a standing instruction to transfer funds from your Savings Account to your RD Account.

Investing through RD serves as an effective means to strategies your short-term objectives by focusing on capital preservation. Moreover, many private sector banks are currently offering interest rates as high as 7% for a 12-month RD. RDs prove most beneficial for investors who adhere to a traditional mindset, prioritising safety when selecting a short-term investment vehicle.

Is Recurring Deposit the Right Investment Option for You?

Investing in a Recurring Deposit (RD) requires careful consideration in light of one's financial goals and risk tolerance. If you seek an investment avenue that ensures guaranteed returns over the short or medium term while minimising risk, an RD could be a prudent choice. However, if your aspirations encompass long-term financial objectives, relying solely on Recurring Deposits might not be the optimal strategy as it offers comparatively lower interest rates for extended durations.

Fortunately, there is a variety of superior alternatives that cater to long-term investments with controlled risk levels. Options like liquid funds, debt funds, and carefully selected equity mutual fund SIPs could be considerable alternatives to RDs. These mutual funds have the potential to generate attractive returns, boast professional management, enhance liquidity, and surpass Recurring Deposits in performance metrics. Nevertheless, it is essential to follow the age-old wisdom of not placing all the eggs in a single basket. Diversification remains a key principle in investment.

Crafting a robust financial plan, outlining specific investment goals, evaluating risk tolerance, and investing in the right mix of financial instruments are pivotal before any financial commitment. Hence, it is advisable to seek guidance from a financial expert to ensure your financial plan suits you the best. A seasoned professional can analyse factors such as risk appetite, income, and financial goals to steer you towards an investment portfolio that aligns with your aspirations.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.