Recurring deposit or RD is a type of term deposit where people save a fixed amount in their banks on a monthly basis. The facility is available both at the Post Office and the various Indian banks and allows people to build a fund by small contributions on a monthly basis. The special feature of RD is its high interest rate which is better than the interest rate offered for fixed deposit. The investment scheme is meant for salaried people who get a specific sum each month in their salaries and likewise have enough to spare in the deposit. The duration of RD varies from six months to up to 10 years.
The interest rates vary according to the contributory amount and the deposit tenure. The banks offer similar rates of interest as offered on term deposits.
Different banks offer different tenures that range from six months to ten years. The maturity amount can only withdrawn on maturity but in case of premature liquidation, account will be closed.
The mature value is the total amount saved along with accumulated interest. The amount could be paid in cash or directed to your bank account. The actual maturity value of a particular deposit is indicated at the time of opening of the RD account.
Loans could be easily availed by using RDs as collateral. A person can avail a loan amount in the range of 80% to 90% on the deposit value.
The government has recently placed Recurring Deposits under taxable income. The money that is invested in a recurring deposit on an annual basis will be regarded as a part of the investor’s yearly income. With effect from June 2015, tax deducted at source (TDS) is applicable on recurring deposits. There is a 10% TDS on interests exceeding Rs. 10 thousand on a deposit, while a 20% TDS will be charged if the depositor does not submits the PAN information. The RD holder would also have to declare interest earned and pay income tax on this amount. If the income lies under the non-taxable income slab, the depositor still has to submit the Form 15G to be taxed for both fixed and recurring deposits.
Different banks have different policies related to late payments where some banks may penalize you, while others waive this penalty.
A person can withdraw the RD before the maturity date after suffering a penalty charge along with a levied penalty on the interest rate.
All citizens of Indian nationality are eligible for Recurrent Deposits.
Listed below are the names of banks that provide best interest rates for RD schemes:
Name of Bank | Interest Rate for 1 year | Interest Rate for 2 years | Interest Rate for 3 years | Interest Rate for 4 years | Interest Rate for 5 years | Interest Rate for more than 5 Years |
---|---|---|---|---|---|---|
Lakshmi Vilas Bank | >7.75% | >7.85% | >7.85% | >7.85% | >7.85% | >7.85% |
IndusInd Bank | >7.60% | >7.75% | >7.35% | >7.35% | >7.35%- 7.50% | >7.25% |
J & K Bank | >7.55% | >7.55% | >7.55% | >7.55% | >6.75% | >6.75% |
DBS Bank | >7.50% | >7.00% | >7.00% | >7.00% | >7.00% | >7.00% |
South Indian Bank | >7.40% | >7.00% | >7.25% | >7.25% | >7.25% | >7.25% |
Bandhan Bank | >7.35% | >7.50% | >7.50% | >7.50% | >7.50% | >6.40%- 7.50% |
City Union Bank of India | >7.35% | >7.35% | >7.35% | >7.35% | >7.35% | >6.70% |
Federal Bank | >7.30% | >7.30% | >7.25% | >7.25% | >7.25% | >7.25% |
HDFC Bank | >7.30% | >7.30% | >7.40% | >7.25% | >7.25% | >6.50% |
Yes Bank | >7.25% | >7.65% | >7.25% | >7.25% | >7.25% | >7.25% |
The banks may change their rate of interests on RD schemes at any moment of time; hence, it is essential to enquire with the bank authorities before investing in an RD account. The rates mentioned here are applicable as of 7 June 2019.
In Recurring Deposits, interest amounts get compounded on a quarterly basis. This is subsequently added up and the final amount that a depositor may receive could be calculated. The below mentioned formula is used to calculate compound interest -
A = P (1 + r/n) ^ nt
Vinay makes an initial deposit of Rs.1 lakh for a time frame of five years at an interest rate of 8%. Hence, according to the above formula, Vinay’s final maturity amount would be Rs.1.5 lakh.