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How Recurring Deposits Make You A Disciplined Saver

Adhil Shetty

The recurring deposit (RD) is an investment tool which is quite popular among a large number of investors. The RD helps build up liquidity. This in turn helps you achieve near-term goals – which could be buying a car in a few months. RDs are also excellent for creating a contingency fund, which you’ll need in any emergency. Long story short, opening an RD account is a basic step towards savings, which in turn leads to wealth creation.

What Is An RD Account?

An RD is a monthly investment product that allows an investor to slowly save money and build a large corpus in the long-term. An RD account is popular among people who look to build up liquidity in a risk-free manner while maintaining discipline in savings. The interest rate on an RD account is same as what’s applicable on a term deposit for same maturity period. The interest rate remains fixed for the entire tenure, so the investor can easily ascertain what corpus he will get on the completion of the tenure. The minimum deposit allowed every month under an RD is Rs. 10 in some cases, and the tenure generally varies from six months to 10 years. The interest is compounded quarterly by most banks. The instalment for investment in the RD account can be deducted through the linked banks account using a standing instruction, or the amount can be deposited directly every month in the concerned RD account.

Benefits Of RD Account

An RD account allows the investor to get a loan from the bank against the existing corpus at an attractive interest rate. So you can avail a loan against the RD during an emergency without disturbing the corpus. If one starts investing in the RD when the interest rate is high, then he will continue to get the rate even if the bank reduces its deposit rate as dictated by the RBI’s prevalent repo rate. You can start or stop the RD using online banking or by visiting your bank branch. You’re allowed to withdraw the corpus before the completion of your RD tenure, subject to the applicable interest rate penalty. Senior citizen investors are usually allowed 0.5% higher than normal investors. If the total interest earned from the RD investment during a year exceeds Rs. 10,000, you’re liable for TDS at the prescribed rate. A default in payment of the RD instalment could invite a penalty at a prescribed rate depending on the tenure you have opted for initially.

Recurring Deposit Interest Rate by Banks
Bank Tenure Range: 1 Year to 10 Year
FD Interest* (% Pa)
State Bank Of India 6.7- 6.85
HDFC Bank 6.0-7.25
ICICI Bank 6.75- 7.25
Corporation Bank 6.5- 6.8
IDFC Bank 7.0- 8.25
Data taken from respective bank’s websites on 18 October 2018.  Table data shows interest rate (low and high range for 1-10 years.) on Recurring Deposits, excluding rates for senior citizens.

Why should you invest in RD?

The interest rate is rising once again and investing in an RD can help you to achieve your short and medium-term financial goals easily. For any financial goals or planned and unplanned expenses, it is advisable to save your own money rather than borrow. So if you have a planned expense like making a down payment for buying a home, buying a bike or a car, accumulating a fund for annual expenses like insurance premium or children’s admission fees, an RD can help you save the required money in a risk-free manner.

The writer is CEO, is a leading online marketplace in India that helps consumers compare and apply for credit card, personal loan, home loan, car loan, and insurance.