What is RD? A Comprehensive Guide to Recurring Deposits

Introduction:

Tap Invest is a leading fixed-income investment platform offering a range of investment options designed to secure your financial future. This guide will explore Recurring Deposits (RD) – one of India’s most popular savings instruments. Even though Tap Invest doesn’t offer RDs, we provide similar fixed-income investment opportunities to help you diversify your portfolio and maximise returns.

What is RD?

A Recurring Deposit (RD) is a savings scheme offered by banks and post offices that allows individuals to deposit a fixed amount of money every month and earn interest on the accumulated sum. It’s an ideal investment vehicle for conservative investors who want to save regularly while earning guaranteed returns.

What is RD in the Bank?

RD bank accounts are an attractive savings option for individuals who wish to invest smaller amounts regularly and receive interest at the end of their tenure. Most banks offer RD accounts, making it easy to start saving in small instalments.

What is RD in the Post Office?

Like banks, post offices offer RD accounts with competitive interest rates and government-backed security. Post office RDs are especially popular among rural investors seeking safe and reliable savings returns.

Key Features of RD Accounts:

1. Fixed Monthly Deposits: Investors deposit a fixed monthly sum over the selected tenure.
2. Flexible Tenure: The tenure can range from 6 months to 10 years, depending on the bank or post office.
3. Guaranteed Returns: The interest rate is fixed at the start of the RD, providing assured returns.
4. Interest Rates: RD interest rates are typically similar to Fixed Deposits (FDs), ranging from 5% to 7% annually.
5. Low Investment Threshold: You can start an RD with as little as ₹100 per month, making it accessible to everyone.

RD Benefits:

1. Disciplined Savings: RDs encourage regular savings by requiring monthly deposits, helping build financial discipline.
2. Risk-Free Investment: RD returns are not subject to market fluctuations, making it a safe investment option for risk-averse individuals.
3. Flexibility: RD accounts are available in banks and post offices, offering flexibility based on the investor’s needs.
4. Assured Returns: Investors know precisely how much they will receive at maturity, providing security.

RD Calculator Formula:

The maturity value of an RD can be calculated using the following formula:

A=P×(1+r/n​)nt

Where:

• A = Maturity amount
• P = Monthly deposit
• r = Annual interest rate
• n = Compounding frequency (usually annually)
• t = Tenure of the RD

You can also use an online RD maturity calculator to estimate returns based on different interest rates and tenures.

RD Premature Closure:

While RDs generally have a fixed tenure, premature closure is allowed, though it may result in penalties or reduced interest rates. For investors who need liquidity before the RD matures, it’s essential to be aware of the penalties imposed by banks and post offices.

RD Tax Benefits and Exemptions:

RD interest is taxable under “Income from Other Sources” in the investor’s income tax returns. If the interest earned exceeds ₹40,000 in a financial year, a TDS (Tax Deducted at Source) is applicable. Unfortunately, there are no direct RD tax exemptions, but you can save taxes by investing in other tax-saving instruments under Section 80C of the Income Tax Act.

How to Open an RD Account?

Opening an RD account is a simple process. Here are the steps to open an RD in a bank or post office:

1. Visit your bank or post office: Most major banks and post offices offer RD accounts.
2. Fill out an RD application form: You must provide details such as the tenure and the fixed monthly deposit amount.
3. Choose tenure and deposit amount: Select a suitable tenure that aligns with your financial goals and deposit an amount you can contribute monthly.
4. Complete the KYC process by Submitting your KYC (Know Your Customer) documents, including identity and address proof.
5. Start Depositing: Make your first deposit and ensure you continue depositing the fixed amount every month.

RD vs Fixed Deposits (FD):

Although both RD and FD accounts offer guaranteed returns, they differ in their approach to saving. In FD accounts, a lump sum amount is deposited at once, whereas in RD accounts, you save smaller amounts regularly over time. Both options are excellent for risk-averse investors but are suited to different savings strategies.

Why Tap Invest for Fixed-Income Investments?

At Tap Invest, we understand the need for secure, reliable investments that provide fixed returns over time. While we don’t offer RD accounts, our platform provides various fixed-income investment options such as government bonds, corporate bonds, and NCDs. These investments provide similar stability and security, with the potential for higher returns compared to RDs.

By signing up on Tap Invest, you can explore our diverse bond portfolio that caters to both short-term and long-term financial goals. With our secure and user-friendly platform, you can build a robust investment portfolio today.

Conclusion:

RD accounts offer a simple and risk-free way for investors to save money regularly while earning guaranteed returns. Whether you choose an RD in a bank or post office, this investment tool is an excellent option for those looking to save steadily over time. For investors seeking higher returns with the same level of security, Tap Invest provides a range of fixed-income investment options to help diversify your portfolio. Sign up now to start your journey toward secure and steady financial growth!

FAQs On Recurring Deposits (RD):

1. What is RD and How Does It Work?

A Recurring Deposit (RD) is a savings scheme offered by banks and post offices where individuals deposit a fixed sum of money monthly over a predetermined tenure. The deposited amount earns interest at a fixed rate, and at the end of the tenure, the principal and interest are returned to the account holder.

2. Which is Better, FD or RD?

FD (Fixed Deposit) is better for lump sum investments where you deposit a large amount at once, whereas RD is suitable for individuals who want to save small amounts regularly. Both offer fixed returns, but the choice depends on your savings habits.

3. How Much is ₹5000 Per Month in RD for 5 Years?

If you invest ₹5,000 per month for five years (60 months) in an RD at an interest rate of 6.5% per annum, the maturity amount would be approximately ₹3,50,000, depending on the bank’s interest rate and compounding frequency.

4. Can I Withdraw RD Anytime?

Yes, you can withdraw an RD prematurely, but penalties such as a reduction in the interest rate may apply. The terms for premature withdrawal vary across banks and post offices.