Recurring Deposit Rate

Introduction

Recurring Deposit (RD) is one of the most popular forms of saving schemes in India along with a fixed deposit. It allows you to deposit a fixed amount on a periodic basis with your bank and earn an interest on the deposited amount. The interest return depends on the period and deposit amount you have chosen on the recurring deposit scheme.

The advantage of recurring deposit is that you can enjoy the same higher interest rate as a fixed deposit as compared to a regular savings account. If you get the same interest as a fixed deposit for a recurring deposit, then what is the difference between both the schemes? A recurring deposit allows you to make ongoing periodic investments in the deposit, whereas in a fixed deposit, you need to deposit the entire lump amount at the time you open the fixed deposit account. For example, if you do not have Rs. 20,000 in cash to invest in a fixed deposit, you can put away a small amount, such as Rs. 1000 every month into the recurring deposit and enjoy a higher interest rate than your regular savings bank account.

A recurring deposit is a way to encourage saving among individuals who may not be able to spare a large sum to open a fixed deposit account but prefer to invest smaller amounts on an ongoing periodic basis.

You can also deposit the money in recurring deposit with a standing order with your bank so that the deposit is automatic. The bank will deduct the amount you have specified and credit it to your recurring deposit account. This is a form of automatic saving and ensures that you set aside a fixed amount on a regular basis regardless of your other expenses. On maturity of the recurring deposit, you are credited with the entire amount, which includes the principal plus interest.

Features of a Recurring Deposit

Following are the salient features of opening a recurring deposit account

• Allows you to deposit money on a continuous basis rather than a one-time payment at opening
• Ideal for people with a regular, stable income who may not be able to spare enough cash to open a fixed deposit
• It is for a pre-determined fixed tenure which can range from a few months to several years
• Offers a higher rate of interest than a savings bank account like a fixed deposit, but with a smaller ongoing investment
• Enables regular, ongoing savings
• Allows premature withdrawal in case of necessity
• It is a safe, low-risk form of saving. Popular form of saving in India
• It has relatively lower returns when compared to other forms of investment, but is secure

Recurring Deposit Interest Rates

A recurring deposit offers the same or higher interest rates as a fixed deposit. Some banks even offer marginally higher interest rates on recurring deposit compared to a fixed deposit for the same tenure. It is important to keep in mind that the interest rates on recurring deposits differ with each bank. Also, the rates offered on recurring deposits may change at any time.

However, once you open a recurring deposit account, the rate remains the same for the entire period of the deposit. If you have opted for a recurring deposit with 36 months tenure, you will get the same interest rate over the whole 3-year period. In general, the recurring deposit interest rates typically range between 6%-9%. This is a general range and individual banks may offer a higher or lower interest rate depending on the amount that you invest and the period that you have invested for.

While the interest rate is the same for the period of the recurring deposit, compounding is done on a quarterly basis.

Senior citizens can enjoy a higher interest rate on recurring deposits. This could be 0.25% -0.50% higher than the regular recurring deposit rate. If you are above 60 years of age and wish to open a recurring deposit, check with your bank about the preferential rates offered.

Recurring Deposit Interest Rates Comparison

Before you open a recurring deposit account, you need to research the interest rates offered by various banks for the different tenures. In general, most banks offer interest rates between 6-9% per annum, with variations depending on the amount and tenure. These rates can change at any time, so it is important to research for the latest rates on the bank websites when you plan to open a recurring deposit account.

Recurring Deposit Calculator

A recurring deposit calculator is a handy tool that helps you calculate how much interest you will earn on your deposit and to determine what the maturity amount will be. It can be slightly more complicated to manually calculate interest earned in recurring deposit since the deposit amount keeps increasing periodically with every addition you make. However, it is fairly simple to find online tools that will help you calculate interest.

Many banks offer an online recurring deposit calculator on their website which helps you calculate the amount you will earn as interest based on the fixed amount you deposit periodically.

If you wish to do it on your own, the formula for calculating interest and maturity amount on a recurring deposit is as follows:

M = R [ (1+i)n – 1]

--------

1- (1+i) -1/3

Where

M = Maturity value

R = Monthly instalment

n = Number of quarters

i = Rate of interest/400

Duration of recurring deposit

Tenure & Amount

The minimum period for recurring deposit is generally 6 months, though some banks can have a minimum period of 2 years. It is best to check with each bank on the minimum period for a recurring deposit account. The maximum period for a recurring deposit is 10 years.

Most banks require a minimum amount to open recurring deposit. In addition, the amount that you deposit on a periodic basis might need to be of a minimum value, at least for the first few months. This minimum ongoing deposit amount also varies with each bank, so it is best to check the required amount before opening the recurring deposit.

Many banks will levy a penalty for a missed payment. Some banks may not charge a penalty for missed payments under certain terms and conditions of opening the account. This offers you the flexibility to save only when you can, and at any time you want, instead of having to deposit a fixed amount at a fixed time for the entire tenure of the recurring deposit.

Withdrawal

When you save in a fixed deposit or recurring deposit, your money is locked up until the time of maturity. However, sometimes, you might be need cash immediately like for medical expenses or for education expenses. Your recurring deposit might be the only source of ready money from your savings. It is possible to withdraw the entire amount of your recurring deposit. Do keep in mind that there might be a fee of penalty for withdrawing the money. The fee may depend on the original tenure of the deposit. The shorter the original tenure, the lower the penalty will be. So, the penalty for premature withdrawal of a one-year recurring deposit will be less than the penalty for withdrawal from a 3-year recurring deposit.

Many banks do not offer facility of partial withdrawal of funds from recurring deposit. The option is to withdraw the entire amount of the recurring deposit in full. Renewal of recurring deposit depends on the individual policies of the bank.

Loan Against Recurring Deposit

In some cases, you might need a small amount of money to tide you over your cash shortfall. You might not want to withdraw the entire amount that is in your recurring deposit, only a part of the money. However, banks do not, in general, allow partial withdrawal from the recurring deposit. You will need to close the recurring deposit and withdraw the entire amount.

If you require only some of the funds that are available in your recurring deposit, you can ask the bank about allowing you an overdraft or loan facility, where the balance in your recurring deposit is held as collateral. Your loan amount will be calculated based on the amount you have in your recurring deposit. Banks can offer up to 75-90% of your balance as the loan amount. The interest rate on the loan is usually a little higher than the recurring deposit interest rate.

Eligibility

Any resident Indian can open a recurring deposit account. Each bank will have its own rules on the minimum opening balance. It is also open to Hindu Undivided Families (HUF), trusts and societies, and private and public limited companies.

Some banks also offer recurring deposits to non-resident Indians, (NRIs) but the minimum tenure could be higher.

Some banks also allow minors to have recurring deposit account. This would be under the supervision of a guardian.

When opening the recurring deposit, you will need to provide documentation for ID proof (for instance, PAN card, Voter ID, Driver’s License, Senior Citizen ID, Passport etc.) and address proof (telephone bill, electricity bill, bank statement with cheque etc). You need to check with the bank what ID and address proof documentation is valid and can be submitted.

It is also a good idea to avail of the nomination facility on your recurring deposit, whether it is singly or jointly held.

Tax Deductions

The recurring deposit will be taxed at source (i.e. subject to TDS). If the interest earned on recurring deposit is more than Rs. 40,000 per annum, it will be subject to 10% TDS.

If the deposit holder does not want tax to be deducted at source, the bank may require them to submit Form 15G / 15H (other than company, firm or co-operative society)/ Exemption Certificate under Section 197 (in case of all holders)/ or any other Tax Exemption Certificate. This form or tax exemption certificate must be submitted every financial year for each recurring deposit held with the bank.

Recurring Deposit Rate: FAQs