The types of saving instruments have increased manifold in the recent years. However, there is one investment option that has remained popular amongst all age groups, and that is a recurring deposit. The following FAQs should solve all your queries –
What is an RD account?
It is a term deposit offered by the Indian banks. It enables the users to deposit a fixed amount to their RD account monthly and earn attractive interests for a year. One of the significant benefits of recurring deposits over fixed deposits is you are committed to investing a fixed amount every month whereas FD requires you to make a lump-sum payment, which you may be unable to do so frequently.
How does RD work?
You deposit a fixed sum with your bank or post office for a predetermined period monthly. You receive a pre-defined rate, and at the end of the term, the invested capital, along with accumulated interest, gets paid to you. The moment you start using the FD account, the deposit amount and term cannot get altered. Also, there are no weekly or quarterly deposit options.
What is the deposit amount?
Most of the banks request you to make a minimum deposit of INR 500, though it can be as low as INR 100. Also, you must try to deposit multiple of INR 500, though some banks allow deposits in multiples of INR 100. In such scenarios, you should check the regulations with the concerned bank.
What is the term of RD account?
The minimum tenure for all RD accounts is six months and is extendable by multiple of three months up to a maximum period of 10 years. The best part about the RD term is you can define the length of the RD term. However, once fixed, the period serves as the lock-in period for the investments.
What is the interest rate paid on the deposits?
The interest rates of recurring deposit are directly related to the price decided by Reserve Bank of India (RBI) and get compounded as well as credited to the account quarterly. The rates typically range between 7.5 per cent to 9 per cent. Senior citizens are eligible for additional interest of 0.25 per cent to 0.75 per cent over the standard rates offered by banks. Check the rates with your bank before opening the RD account.
Is it possible to redeem RD before the term ends?
You can stop your deposits any time and redeem them whenever you want. However, this could lead to a minor penalty for cancelling the RD account prematurely. This penalty gets defined at the time of opening the account. But the principal money does not get affected under any circumstances.
Do RD accounts have beneficiary facilities?
Yes, all types of deposits have a nominee and beneficiary facility dedicated to the account. You can change the guarantor any time by duly filling the form with the bank.
Is there an RD account for minor or are they joint accounts?
Yes, minors can open an RD account. They should be below 18 years. There is also the option of opening the account with someone else as a joint one.
What happens when there is a delay with deposits?
The moment you apply for a recurring deposit, you are informed about the maturity value under the assumption that monthly installments get deposited on the due date. If you delay the deposit by a day calls for interest penalty that gets applied for the entire month. There could also be a cash penalty which is the proportion of monthly deposit. It also affects your maturity pay-out.
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