Benefits of Recurring Deposits That You Need to Know

An RD (recurring deposit) is a term deposit which enables investors to save fixed amounts on a monthly basis. These schemes are mostly offered by post offices and leading Indian banks where people can contribute smaller amounts towards creating a fund that earns sufficient interest.

It is imperative that before checking out recurring deposits interest rates of renowned banks such as SBI RD interest rates and rates of interest on recurring deposits offered by other financial institutions, you should understand the basics.

The investment option is suitable for salaried professionals and self-employed citizens alike. These deposits usually cover tenures between 6 months and 10 years on an average and you can open these accounts with small initial investments.

Opening an RD

RDs can be opened through these methods:

• You should visit your post office or bank nearest to you. Fill up a form for opening a recurring deposit and you will have to provide proof of identity likewise. You can then make your deposit and get the account opened.
• If internet banking provisions are offered by your bank, you can log in to your online banking account and set up your RD.
• You can visit your nearest banking branch and make your payment on or within the due date.
• You can provide standing instructions to your bank for debiting your account with the monthly RD amount on the proper date.

Eligibility for opening RDs

Recurring deposits may be opened by the following applicants:

• Resident Citizens of India
• HUFs (Hindu Undivided Families)
• Sole Proprietorships, Corporations, Partnerships, Societies, Trusts and Clubs
• Minors can apply under the supervision of their guardians
• NRIs may also invest in RDs

Documents that are needed for RDs include KYC documents, two passport size photographs (recent photographs), the signed and filled up application form and other documents as requested by your bank.

Key benefits of RDs

• Smaller monthly outgo– Most Indian banks will have reasonable amounts to be paid as monthly instalments for RDs. Some banks may even offer RDs where the frequency of instalments may be half-yearly or quarterly. This ensures that those who have lower savings may easily invest in these schemes.
• Objective-based savings– RDs help in creating savings for the future, which are closely linked to specific objectives/goals. Regular installments will keep earning compound interest and this will help in building a considerable future corpus. Instalments may be suitably planned so that you can meet any future requirement with ease. For checking maturity sum for any instalment amount, RD calculators may be used online. You can plan out your monthly financial outlay as a result of this calculator.
• Rate of interest– The RDs will be earning similar interest as FDs (fixed deposits). They can be used for earning income in the future. Interest will be compounded on a quarterly basis and this will help investors scale up their corpus significantly over longer durations. Senior citizens may also earn higher interest on RDs.
• Building savings for minors– Minors may open RDs with a joint holding by their legal guardians or parents. This will help in creating a future corpus for the benefit of the minor in question.
• Financial Discipline– RDs help investors ensure suitable financial discipline every month. Investors have to pay the same amount every month on the same due date. This builds financial discipline and helps create a savings habit which is highly beneficial by all means.
• Loan provisions– Most Indian banks provide loan facilities for RD amounts. Loans are provided up to 95% of the RD amount and this may be used in case of any sudden financial requirement.
• Easy opening– Setting up an RD is quite easy and you need not have a savings bank account in a bank to open an RD there. Opening an RD is a procedure that you may complete online through net banking facilities. If not online, you can always visit your nearest banking branch and fill-up the form for the RD before submitting the necessary documents and cheque for the instalment.
• TDS– RD benefits can be availed in terms of tax deducted at source (TDS). Banks will be deducting taxes on RD interest only when it crosses Rs. 10,000 annually. If the interest earned does not cross this amount, then no taxes are payable. No taxes are deducted in case investors submit Form 15G/15H stating that their income remains fully below the limit for taxation.
• Nomination provisions– RDs have nomination provisions with the amount being paid out to the nominee in case of the unfortunate demise of the holder of the deposit. Setting up nomination facilities for an RD is a simple affair and this detail may be given while setting up the RD account.
• Interest deductions for senior citizens– Interest that you earn on RDs will be chargeable for taxation purposes, the interest that is earned up to Rs. 50,000 will be deductible for senior citizens under Section 80TTB of the Income Tax Act. This ensures a significantly greater income percentage remaining in the hands of senior citizens.

A Recurring Deposit is thus an excellent investment choice for those who wish to build up their savings corpus for the future. Setting up a recurring deposit account is an easy procedure and minimal documents need to be submitted. Compounding interest for a substantial tenure will naturally help you build up a sizable maturity amount.