What is Recurring Deposit & How to Open a RD Online/Offline?

A recurring deposit, sometimes known as an RD, is a method of systematic savings that allows individuals to consistently build funds by making regular fixed contributions at predetermined intervals. This financial tool encourages people to save by allowing them to donate a set amount each month.

Keep reading to know about recurring deposits, their types, features, and other crucial details.

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How Does a Recurring Deposit Work?

A Recurring Deposit (RD) account is an investment tool that allows investors to make recurring monthly deposits and save money over a set period of time.
Investors can select the deposit tenure and monthly payout amount according to their needs.
On a particular date in the future, the deposit will mature along with all the deposits made each month.

RD offerings are often more flexible than fixed deposit schemes and are favoured by those who want to open an account to save money and develop a rainy-day reserve.

What are the Types of Recurring Deposit Accounts?

Discussed below are the 5 most common types of recurring deposit accounts:

Regular RD Accounts: As the name suggests, this happens to be the most common type of RD account. With this, the account holders are allowed to deposit a certain amount into the account once each month for a time period in order to receive a set interest rate on the deposit amount.
RD Accounts for Senior Citizens: Specifically meant for senior citizens, these RD accounts usually offer an extra 0.50% to 0.75% in interest over ordinary rates through these RD types.
RD Accounts for Minors: Feasible only under the supervision of their parents or guardians, these RD accounts are specifically meant for minors.
NRE Recurring Deposit: Connected to your NRE account, it allows you to deposit international earnings in the currency of your foreign country of residence.
Tax Saving Recurring Deposit Account: With this type of RD account, you get the opportunity to save your tax under section 80C of the Income Tax Act, 1961.

What are the Features of a Recurring Deposit Account?

The following are a few features of Recurring Deposit:

The minimum deposit time is six months, and the maximum deposit period is ten years.
The interest rate of a Recurring deposit is the same as that offered on a Fixed Deposit and thus higher than any other tax Savings Scheme.
Certain banks and NBFCs charge a penalty for early and mid-term withdrawals, while others do not allow premature or mid-term withdrawals.
RD also provides the option of taking out a loan against the deposit, i.e. utilising the deposit as collateral. Approximately 80% - 90% of the deposit amount can be loaned to the account holder. It differs depending on the lender.
The Recurring Deposit can be financed on a regular basis by using Standing Instructions, which are instructions issued to the bank by the customer to credit the Recurring Deposit account every month from their Current or Savings Account.

What are the Benefits of Recurring Deposit?

Customers can choose from a variety of investing options when it comes to saving money. However, recurring deposits offer the following benefits and advantages:

RDs enable investors to achieve attractive FD-like returns on small-ticket investments.
This form of deposit account assists investors in developing the discipline of saving money on a regular basis.
RDs, unlike other monthly investment programmes such as mutual funds' systematic investment plans (SIPs), provide guaranteed returns.
Most banks provide loan services to consumers who have RD accounts. Customers can borrow up to 95% of the amount parked in their RD. However, the interest rate varies by bank.
You can open RDs in tiny sums, with monthly installments as low as ₹ 100, ₹ 500, ₹ 1,000, and so on, depending on the bank with whom you open the RD.
There is no danger of capital evaporation. When the RD matures, the bank repays you the entire amount deposited plus interest.

What are the Eligibility Criteria for a Recurring Deposit?

The eligibility conditions for a Recurring Deposit (RD) in India may differ slightly from one bank to another.

However, the following are some standard requirements that most banks follow:

Criteria	Eligibility Details
Age	Individuals above 18 years can open an RD account. Some banks also allow minors to open an RD account with the help of a guardian.
Residential Status	Both Indian residents and Non-Resident Indians are eligible to open an RD account, although specific terms and conditions might apply for NRIs.
Customer KYC	You need to provide valid Know Your Customer (KYC) documents such as identity proof, address proof, and a recent passport-sized photograph.

What are the Documents Required to Open a Recurring Deposit?

To start a Recurring Deposit (RD), you must have the following documents prepared:

Any legitimate government-issued photo ID, such as an Aadhar card, passport, PAN card, or voter ID.
Utility bills, bank accounts, rental agreements, or any other official document displaying your present address.
A recent passport-sized photograph is required for account opening and verification.
A Permanent Account Number (PAN) card is frequently required for tax purposes.
Non-resident Indians (NRIs) may be required to furnish a copy of their passport.

How to Open a Recurring Deposit Account Online?

There are 2 prominent processes in this regard:

1. Via Net Banking:

Step 1: Navigate to your bank's net banking website.
Step 2: Enter your login information.
Step 3: Look for the option 'Open Deposit Account' or something similar.
Step 4: Choose the 'Recurring Deposit Account.'
Step 5: Set the desired amount and duration for the RD.
Step 6: Set up recurring instructions, specifying the debiting account and the date.

2. Using a Mobile App:

Step 1: Install the mobile app for your bank.
Step 2: Enter your login information.
Step 3: Look for the phrase 'Open Deposit Account' or anything similar.
Step 4: Select the 'Recurring Deposit Account.'
Step 5: Set the RD amount and duration after calculating using the built-in RD calculator.
Step 6: For standing instructions, enter the debiting account and date.

How to Open a Recurring Deposit Account Offline?

If you already have a bank account, all you need to do is go to the bank and fill out an application form to start an RD.
If you do not already have an account with the bank, bring your KYC documents with you when you visit the bank to start an RD account.
The bank will open an RD for you after your information has been validated.

Thus, there are different types of recurring deposit accounts, each with their own set of advantages. A recurring deposit continues to be one of the most widely adopted means of financial planning that allows convenience and consistency.

FAQs about Recurring Deposits (RD)

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Are recurring deposit accounts offered by post offices and banks the same?

Although the core mechanics of Recurring Deposit accounts offered by post offices and banks are similar, there may be differences in specific rules and procedures.

Can a recurring deposit account be withdrawn prematurely?

A depositor might apply to the bank for a premature withdrawal of the recurring deposit account. The depositor's return on principal will be offered solely for the period in which the money was deposited in the bank's recurring deposit account.

How do Recurring Deposits (RD) vary from Fixed Deposits (FD)?

In an RD, you deposit a preset amount at regular intervals, whereas in an FD, you invest a big sum for a set period of time. RD is best for people who have a steady income, but FD is best for people who have a large sum to invest.

Can a joint account be used to open recurring deposits?

Yes, many banks allow joint RD accounts. Both account holders must sign the form and provide the documentation required.

What is the taxation of Recurring Deposit interest?

The interest you earn is taxed based on your tax bracket. TDS may apply if interest surpasses a specific threshold.