The Power of Recurring Deposits and Ultimate Financial Growth
An RD account, commonly known as a Recurring Deposit, serves as an investment option that is offered by most banks, that enables their investors to save money regularly for a predetermined duration. Investors have the flexibility to determine the deposit’s tenure and the monthly contribution amount depending on their requirements and needs. The tenure option can range from a minimum of 6 months to 10 years, however the longer the tenure the more interest benefit gained.
Recurring deposit schemes are substantially more flexible when compared to fixed deposits. To be precise, RD plans are opted for by those investors or individuals who wish to start an account to save money for unforeseen circumstances. If you lack a big lump sum amount to fulfil short-term goals, assigning a portion of your monthly income to an RD account will effectively serve this purpose.
Individuals can plan to open their Recurring Deposit account with many financial institutions like banks, NBFCs, and post offices. Depending on your budget be it even as small as Rs. 500 you can invest every month with your bank.
Types of Recurring Deposit Accounts
1. Regular RD Accounts:
Regular RD accounts are meant for Indian residents between 18 years and older. This type of RD account will allow their depositors to invest a fixed amount once every month over a predetermined period, this way they can earn a fixed interest on the deposited amount. The interest rate will be calculated based on the tenure of the account.
2. RD Accounts for Minors:
RD accounts for minors are designed for individuals under the age of 18, making sure all the transactions are done under the supervision of their parents or guardians. Like regular RD accounts, a fixed monthly instalment and tenure are determined during the time of creating the account. Interest returns may be either the same or slightly higher when compared to those of regular RD accounts.
3. RD Accounts for Senior Citizens:
Banks offer special and customised RD accounts for all senior citizens, typically aged between 60-70 years or above. Senior citizens are eligible to receive additional interest rates compared to regular customers. The interest amount can be compounded either quarterly or half-yearly depending on the nature of the deposit.
4. NRE/NRO Recurring Deposit Accounts:
Non-Resident Indians (NRIs) have been given the option to open a Non-Resident External (NRE) and a Non-Resident Ordinary (NRO) RD account. With this facility, NRIs can earn good interest rates and save regularly every month, utilizing income earned both outside and within India.
Points to consider before applying for RD:
1. Term Period of the Recurring Deposit Account:
The term period of Recurring Deposit accounts generally falls into three categories: first, short-term tenure that lasts from 6 months to one year; next, medium-term tenure that ranges from more than one year to 5 years; and finally, long-term tenure that extends from more than 5 years to 10 years. Therefore, it is very crucial to carefully assess the tenure options available with financial institutions before applying for an RD account.
2. Interest Rate:
Before opening an RD account, it is important to evaluate and compare the interest rates offered by different banks. Interest rates can differ depending on the tenure chosen and the policies of individual banks. It will be of benefit to compare the interest rates of various institutions to help you maximize your returns on the investment.
3. Premature Withdrawal Conditions:
While most banks offer the option to open an RD account, they also allow you to withdraw prematurely if you follow the conditions and policies. However, if you choose to withdraw before the maturity date, the bank will calculate the interest payable based on the completed tenure and may impose a penalty.
Therefore, it is always advisable to select a bank that offers comparatively higher interest rates and imposes minimal penalties for premature withdrawal when making your investment decision.
Advantages of Recurring Deposit Accounts:
1. Encourages regular saving habits.
2. One of the main advantages is no penalty for missing a monthly RD instalment.
3. Offers a significantly higher interest rate compared to savings accounts.
4. Some banks only require as little as Rs. 100 to start a recurring deposit account.
5. Moreover, the process of opening a Recurring Deposit account is hassle-free, particularly for existing savings account holders.
6. The process of documentation is very simple, often requiring minimal paperwork for existing members.
7. Provides a great savings option for achieving short-term financial goals.
Disadvantages of Recurring Deposit Accounts:
1. You won’t receive any returns if you make withdrawals within the lock-in period
2. Partial and premature withdrawals are subject to penalties, and fees under specific criteria.
3. Fixed instalment amounts with limited flexibility.
4.Additionally, interest rates are lower when compared to other investment options.