Recurring Deposit
Recurring Deposit (RD) – Types, Features, Returns & Benefits
Among the low-risk investment tools with moderate and assured returns, Recurring Deposit (RD) is a popular investment option in India. It comes with an option of flexibility for customers in the choice of investment amount and tenure accompanied by multiple other benefits.
Available in flexible tenure options ranging from 6 months to 10 years, this investment tool offered by multiple banks and NBFCs helps channelize monthly savings for long or short-term corpus creation.
Investors can thus choose a minimum amount to be invested every month over the term for assured wealth generation.
If you do not have a lump sum amount to meet short-term goals, depositing a small share of your income to the RD account every month serves the purpose well.
A brief overview of Recurring Deposits
You can opt to open your Recurring Deposit account with multiple financial institutions like banks, NBFCs or even post office. While the minimum amount of investment may vary from one institution to another, you can usually start with a considerably small amount, say Rs. 500 every month, as per your budget.
However, the right RD would be the one that allows for a suitable investment amount given your capacity and provides a maturity option that rightly fits your short or long-term funding plans.
You must, therefore, make sure to consider the available flexibility when choosing the financial institution to invest with.
Features of Recurring Deposit
RD allows you to earn fixed interests on the amount invested at frequent intervals until the investment matures or a pre-determined term ends.
The total amount (i.e., the capital invested and the interest accumulated) is disbursed to the investor after the maturity period completes.
Here is a table that provides a brief overview of RD features:
RD Features |
Applicability |
Rate of interest |
Between 11% to 13.5% (variable from one bank to another) |
Amount of minimum deposit |
From Rs. 100 |
Tenure of investment |
Between 12 months and 15 years |
Frequency of interest calculation |
Usually every quarter |
Mid-term or partial withdrawal |
Not allowed |
Premature account closure |
Allowed with penalty |
Now, take a look at the features of RD in details.
The minimum investment amount varies from one bank to another. You can open this account with an amount as small as Rs. 10.
The minimum deposit tenure starts from 6 months. You can choose a suitable period of deposit with a maximum tenure stretching up to 10 years.
The interest rate offered on RDs is always higher than the interest earned through a savings account. The interest rates offered on RDs are also similar to what you can earn through FDs.
However, the periodic investment instead of a lump sum amount makes it suitable for individuals who aim to create a corpus through their monthly savings.
Withdrawal from this account is allowed only after it attains maturity. However, if you choose to withdraw the amount before the maturity period ends, it attracts a premature penalty.
You also have an option to avail a loan against the RD. Banks may allow up to 95% of the deposit amount as a loan against deposit used as collateral.
If you find it inconvenient to deposit the amount periodically, banks also facilitate such payments as deductions from a linked account (savings or current) upon standing instructions.
Returns on RD – Interest earned
Almost all banks in the country along with several other institutions offer Recurring Deposit investment options. The interest rates are, thus, highly competitive. Depending on the prevalent market trends at the time of account creation, the interest rates may vary anywhere between 11% and 13.5%. The average interest rates, however, hover around 5.5% to 7.5% for most banks.
Interest rates in RD also vary depending on the investor’s age. For instance, senior citizens can enjoy the benefit of higher interest rates as against the existing interest rates for regular RD schemes. Also calculate your rd returns by using RD Calculator.
Types of Recurring Deposits
Apart from the regular RDs that you can invest in to earn interest income and grow your corpus, RDs are also available in other types, suitable for different investors. Take a look.
Carrying the same features as a regular RD, the scheme for senior citizens brings higher interest rates than the regular accounts. The interest is compounded quarterly as per the applicable interest rate, thus helping senior citizens withdraw a higher maturity amount and meet their short-term funding needs efficiently in the absence of a regular income.
Generally, the additional interest rates offered by various banks on senior citizen RD scheme range between 0.25% and 0.75% above the regular deposit rates.
RD schemes are one of the best investment options for NRIs (Non-Resident Indians). Substantial returns through an investment can generated with a small recurring investment amount per month. As an NRI, one can invest in RDs either through an NRE or NRO RD account.
Flexi RD deposit schemes allow an individual to invest a flexible amount as per his/her convenience. While the core investment amount is pre-decided in this type of deposit, the account holder has an option to deposit amounts in multiples of the core amount.
For example, if the core deposit amount is decided at Rs. 1,000, the investor can choose to deposit in its multiples, i.e., Rs. 2,000, Rs. 3,000, etc. While the investment flexibility is available, interest on the amount is calculated at a stable rate. Interest calculation on the core multiples are done based on investment duration.
Several banks offer flexible RD schemes with the varying tenure as well as conditions.
RD renewals and deposits
Conditions regarding a premature or partial withdrawal of RD are applicable if you initiate withdrawals before the tenure ends.
Benefits of RD investment
As the return of principal amount investment along with accumulated interest as per the applicable rate is guaranteed, RD becomes a smart, risk-free investment option. Check out some other benefits it brings.
RD is an entirely risk-free investment whose guaranteed returns make it suitable for fulfilling both short and long term goals. Hence, RD may be just the right investment option if you require financial assistance to meet the below-mentioned requirements.
As a Recurring Deposit scheme requires you to make fixed monthly investments, it helps inculcate a savings discipline. It is beneficial more so for salaried individuals who have multiple financial goals to fulfil with a fixed income.
RD interest is calculated at a fixed rate throughout its tenure. So, if your bank offers an interest rate of 6.50% on your RD, interest calculation will be done at this rate irrespective of the changing market trends or change in your bank’s policies regarding interest rate offered.
You, therefore, do not have to worry about any RD interest rate reductions.
The interest income from Recurring Deposit is taxable, with TDS deducted by the bank at the rate of 10% if the income is above Rs. 10,000.
In case your annual income is below the minimum exemption limit, you can save on this tax by providing form 15G to your bank. For senior citizens, form 15H is applicable.
Choose your RD scheme wisely before investing and also check the terms, conditions and incentives offered by different banks to decide on the best option. Compare the offers carefully to opt for the one with the highest returns in the shortest period for optimum earning.