Deposits

What is Recurring Deposit & how does it work?

3 mins read

Jul 23, 2024

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Saving money regularly is essential for financial security. A Recurring Deposit allows you to invest a fixed amount every month and earn interest, helping you grow your savings steadily.

Meaning of Recurring Deposit

A Recurring Deposit (RD) is a term deposit where you deposit a fixed amount regularly, usually monthly. It encourages regular savings and offers higher interest than a regular Savings Account. It promotes a disciplined savings approach, accumulating substantial funds over time with compounded interest.

How does a Recurring Deposit work?

Understanding what is a Recurring Deposit involves knowing how it operates. You decide on a fixed amount to be deposited every month for a predetermined tenure. Once the tenure ends, you receive the total principal amount, along with the interest earned. The interest rate on RDs is generally similar to that of Fixed Deposits (FDs), and the interest is compounded quarterly, which can significantly boost your savings.

Features of Recurring Deposit

Feature	Details
Rate of interest	Varies between 3.5% and 7% per annum, compounded quarterly
Minimum deposit	Can be as low as ₹10, but typically ranges from ₹100 to ₹500
Tenure of investment	Ranges from 6 months to 10 years, offering flexibility to meet your financial goals
Interest calculation	Interest is usually calculated quarterly to maximise returns
Mid-term / partial withdrawal	Generally not allowed; some banks may permit this with a penalty
Premature account closure	Permitted but usually incurs a penalty, often a reduced interest rate for the invested period

Factors to consider before applying for RD

1. Term period: Choose a term period that fits your financial plan, ranging from 6 months to 10 years.

2. Interest rate offered: Compare the interest rates offered by different banks to maximise your returns.

3. Premature withdrawal conditions: Understand the penalties involved in premature withdrawals to minimise losses in case of an emergency.

How to open an RD online

To open an RD online, you can visit Axis Bank's official website or mobile banking app, fill out the application form, provide the necessary KYC documents, and choose your deposit amount and tenure. The process is straightforward and convenient.

How to open an RD offline

To open an RD offline, visit your nearest bank branch. Fill out the RD application form, submit the required KYC documents and specify your deposit amount and tenure. The bank staff will assist you in completing the process.

How much is the TDS on RD?

TDS on RD is deducted at 10% if the interest earned exceeds ₹40,000 annually (₹50,000 for senior citizens). Without a PAN, the TDS rate is 20%.

Who should invest in RD?

Recurring Deposits are ideal for individuals with a regular income and seeking a low-risk investment option with guaranteed returns.

Also Read: Exploring different types of Recurring Deposit (RD)

Conclusion

Recurring Deposits offer a structured way to save regularly and earn interest. They provide flexibility in deposit amount and tenure, making them ideal for disciplined savers. Opening an RD, whether online or offline, is simple and enhances financial security.

For example, Axis Bank's Recurring Deposit helps you build savings through systematic monthly deposits. You can start with a minimum amount of ₹500 and earn interest based on the deposit amount and tenure. With tenures ranging from 6 months to 10 years, it's a versatile option for growing your savings. Use the Axis Bank Recurring Deposit Calculator to estimate your returns and plan your investments effectively.

Disclaimer: This article is intended solely for informational purposes. The views expressed in this article are personal. Axis Bank and/or the author shall not be liable for any direct or indirect loss or liability incurred by the reader arising from reliance on the content herein. Readers are advised to consult a qualified financial advisor before making any financial decisions. Axis Bank does not endorse or guarantee the accuracy of any third-party content or links included in this article.