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Recurring Deposits - How to Reap Maximum Benefit from Them

IndianMoney.com Research Team | Updated On Friday, January 17,2020, 05:47 PM

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Recurring Deposits - How to Reap Maximum Benefit from Them

 

 

Recurring deposits schemes are the most popular and simplest means of investment available in India. Beginners and risk-averse investors looking for safe returns can choose a recurring deposit because of its simple terms. Most of the beginners and traditional investors do not understand the complexities of financial products like stocks and mutual funds and thus they leave their funds dormant in their savings account.

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Recurring Deposits - How to Reap Maximum Benefit from Them

Opening an RD account will not only help you channelize your savings into investments but will also allow you to generate greater profit through interest income and compounding. Discussed below are some tips and tricks to extract the maximum benefit from your RD investments and using the product to ease your financial life:

Simple and Beautiful financial Product:

These along with FD are the simplest financial products available in the market. There are no complicated guidelines attached to these investments and one can open a recurring deposit account with a nominal investment. Recurring deposits are offered by banks as well as post offices. All you have to do is open an RD account and contribute a fixed sum of money regularly until maturity. It is a good way to earn attractive interest though regular investment.

See Also: Fixed Deposit vs Recurring Deposit: Which is the Better Option?

Planning your Short Term Goals using Recurring Deposits:

Recurring deposits is one of the best ways to plan for your short-term goals and nurture a regular savings habit. It is a risk-free investment option that offers you guaranteed returns. Investment options like stocks or mutual funds are not meant for short-term investments. This is because equity-related products are highly volatile and returns from such products can only be expected over a long investment horizon.

Recurring deposits are ideal investments products if you are aiming to save for your short-term goals over investment tenure of 2 to 5 years. You can create a good corpus if you are planning to meet financial requirements like:

  • A corpus for the down payment of a home
  • Education fees for your children
  • Fund home renovation or marriage expenses
  • Fund international vacations.

See Also: Recurring Deposit (RD) Interest Rates of Major Banks March 2019

Using Recurring Deposits for Ultra Short term goals in life:

One of the reasons why RDs are widely popular among the Indian masses is because they are the best investment tools to fulfil your ultra-short-term goals. Most often we tend to focus on long-term savings and life goals like retirement and purchase of a home. In our quest to meet the bigger goals we often neglect the smaller ones. But planning the smaller goals like yearly vacations or a big-ticket purchase can help you fulfil them with ease. Thus instead of draining your emergency funds to buy a big-screen TV or finance annual vacations you can simply open an RD account and save for the ultra-short-term goals that are due in the next 10 to 12 months.

Recurring Deposits Tenure and minimum Requirement:

You can open an RD account by depositing a minimum amount of Rs. 100 monthly in your bank for a maximum period of 10 years. There is no specified upper limit on RD deposits. These schemes are immensely popular in rural and semi-urban areas and allow individuals to make savings for their future by ensuring regular and monthly payments. So the minimum deposit limit is kept low to make it accessible to various age group and income groups.

However, the minimum and maximum tenure and amount for private and public sector banks differ. In case of public sector banks, you can start an RD with a minimum deposit of Rs. 100. But in private banks, the minimum limit ranges from Rs. 500 to Rs. 1000.

See Also: How to Save Money with PAYTM Recurring Deposit and Flexible RD?

Some other Features of Recurring Deposits:

  • The investors do not have to pay TDS on recurring deposits, but the interest income is fully taxable.
  • The recurring deposit can be availed for varied tenures ranging from 6 months to 10 years
  • Generally, the rate of interest on RD is high and thus it ensures better returns on deposit than a bank savings account. Also, the interest is compounded on a quarterly basis thus ensuring a higher return.
  • Nomination facility is available for RD accounts. Also, these accounts can be held jointly in the form of joint RD accounts.
  • Recurring deposits can be withdrawn before maturity. The scheme allows beneficiaries to withdraw their deposits with minimum penal interest.
  • Some banks also offer Flexi recurring deposits where you can increase the amount of monthly contributions as per your convenience.

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