All you need to know about recurring deposit

Savings as a habit

Savings is a habit Indians are proud of and almost every household indulges in saving their hard earned money in some form or the other. Helpfully, banks such as IDFC Bank also offer appropriate schemes to encourage savings. Among the many savings accounts, banks offer you such as fixed deposits and savings accounts, there is the important one of Recurring Deposit (RD) account which provides great features that millions of Indians use to save regularly and receive a substantial amount at the end of the RD tenure.

Let’s see what a recurring deposit account is and how it can help you in managing your finances fruitfully.

Recurring deposit account

RD is an excellent savings habit that satisfies your need for regular savings for a particular length of time earning returns. Typically, in a recurring deposit account, you save a fixed sum every month for specified length of time. IDFC Bank offers you RD accounts for varying periods that ranges from a minimum of 6 months to a maximum of 10 years. Your RD account earns interest at varying rates depending on the period for which you take the RD.

The recurring deposit account has some useful features that encourage savings. The various features of the RD account include the following.

Amount of monthly savings

You can save as little as Rs. 2,000 per month or any amount that you can afford up to Rs. 75,000 per month.

Period

You can save for a minimum period of 6 months going all the way up to 10 years or 120 months.

Interest rate

Your monthly deposits to the recurring deposit account earn interest on the cumulative deposit every quarter. The bank offers an interest rate applicable to different periods of deposit. The rates are

  • 6.75% for the RD of 6 months duration
  • 7.00% for the RD of 9 months duration
  • 7.25% for the RD of 12 months to 36 months duration
  • 7.20% for the RD of 39 months to 90 months duration
  • 7.00% for the RD of 120 months

As you can see, you can save for any length of time depending on your requirement. For instance, you can use the recurring deposit calculator to calculate the cumulative sum including interest that you would receive for a particular tenure.

Who can open an RD account?

You can open an RD account in your individual capacity or as a HUF. You can also open the RD account in your children’s name if they are minors. Even NRIs can open a recurring deposit account through their NRO or NRE accounts.

Simple procedure

You can open an RD account quite easily when you have a savings account. You can create the RD account and leave standing instructions to the bank to deduct the monthly savings required for the RD account from your savings account. Once you have the savings account there is no further documentation necessary for opening the recurring deposit account.

Tax implications

There is no tax benefit other than the standard liability to pay income tax on your yearly income applicable as per the slab rates. On the contrary, the RD account attracts TDS on the interest earned. For instance, if you are not a senior citizen and saving Rs. 5000 per month for 36 months you can calculate the amount you would receive at the end of the RD term by using the recurring deposit calculator which is Rs. 201,474 out of which the interest amount is Rs. 21,474. You would have to include this interest amount as your income when you file your ITR for the relevant assessment year.

Conditions

The RD account has some conditions which include

  • Pay-out of interest is on maturity along with the aggregate of monthly savings
  • Premature withdrawal before completion of 30 days for domestic and NRO account receive no interest. Premature withdrawal after completion of 30 days but before 6 months for domestic and NRO account receive interest equivalent to the fixed deposit card rate applicable for 30- 45 days. Similarly, premature withdrawal before completion of 365 days for NRE account receive no interest

Senior citizens

Senior citizens receive an additional 0.5% interest over and above the interest rate applicable to domestic accounts only (not for NRI NRO and NRE RD accounts). For instance, if you are saving Rs. 5000 per month for 36 months you can calculate the amount you would receive at the end of the RD term by using the recurring deposit calculator which is Rs. 203,062 out of which the interest amount is Rs. 23,062.

The recurring deposit account is a boon to you for inculcating the savings habit early in life for yourself as well as your children. If you are in a profession as a salaried person or a businessman earning a regular income, you can open RD accounts to plan your finances conveniently. For instance, if you have to make yearly payments for insurance or tax savings instruments say in March of every year, you can open multiple RD accounts of 12-month duration beginning in February of the previous year and receive the lump sum amount required for making the relevant investment. The RD account helps you to lessen the burden of making lump sum yearly payments by allowing you to save small amounts every month. The recurring deposit account is an excellent short-term savings instrument which you can use without any inhibition.

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