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Recurring Deposit [RD] Account in India

Recurring Deposit is the best option to begin saving and investing. Recurring Deposit is popularly known as RD. RD gives benefits of both Saving Account and Fixed Deposit (FD).
We save and invest cash keeping some objectives in mind. We want to create wealth but we cannot make one-shot investments like FD all the time on the other hand saving account gives nearly negligible returns. Hence, we can go for a Recurring Deposit Account.
Let’s know more about the RD.

What is a Recurring Deposit account?

RD is a cumulative deposit scheme.

Unlike FD we can deposit in RD each month making it an easy investment instrument. 

The amount which needed to deposit will be decided at the time of opening an account.

What is the minimum and the maximum amount of RD?

We can open an RD with a minimum amount of just Rs. 500. There is no limit on the upper side of the RD.
Except for the post office where you can start with just Rs. 10

What is the minimum and maximum Lock-in period for RD?

The minimum lock-in period for which we can keep an RD is 6 months and the maximum period is 10 years.
The lock-in period is also called a period of maturity. The amount in RD can be pulled back before its maturity. The premature withdrawal of funds is called breaking an RD.

What are the Interest rates for RD’s in India?

The interest rates for FD’s ranges from 3 %/anum to 9 %/anum in general.

How is RD calculated?

The below formula is used to calculate the RD

S.I.= [P*n(n+1)*r]/2400
SI: Simple Interest
P- Amount deposited
n-number of months
r-rate of interest /year

What is the Flexi Recurring Deposit account?

Flexi Recurring Deposit account is a type of Recurring Deposit account that comes with the flexibility to deposit a convenient amount. The amount which you need to submit at the end of each month will not be fixed, unlike the recurring deposit account. You need to open an account with a minimum amount which you can deposit each month. The minimum amount is called a core amount. You can deposit any amount between the core amount to ten times the core amount. All the other features like interest rate, TDS, lock-in period are the same for flexible RD as well.
 Let us understand with a help of an example.
Nilesh opens an RD with a core amount of Rs. 500 for 1 year, then Nilesh can deposit any amount ranging from Rs. 500 to Rs. 5000.
Flexible RD offers returns of an FD with the flexibility of a Saving Account.

Is a Recurring Deposit Account safe in India?

Funds in RD are insured by DICGC (Deposit Insurance and Credit Guarantee Corporation).
The insurance coverage for depositors in all insured banks is 5lac as per the Press Release Ni. 2019-2020/1878 dates February 4, 2020, issued by Reserve Bank of India.
This means we can get up to Rs. 5 Lac back if the bank fails. Follow this link to check the Press Release:  https://www.dicgc.org.in/pdf/2019/TheIncreaseInInsuranceCoverageForDepositorsFeb2020.pdf

Can we get loan against RD?

Yes, we can avail a loan against RD. The loan amount can be up to 90%  of the amount in RD account and the interest rate for such loan is 1% to 2% higher than what we get on our fund.

What happens if we miss the RD installment?

If we are unable to pay the installments for consecutive months, the account will be deactivated. The period after which the RD will be deactivated is 3 months to 5 months.

The account can be reactivated but banks charge penalty for not paying the installments timely.

RD offers flexibility to skip one month’s due without any penal charges.

Is RD tax-free?

The amount invested in RD is tax-free up to 1.5 lac in the financial year which is the limit for Tax saving investments. The income generated on RD taxable under income from other sources. 

What is TDS?

TDS stands for Tax Deducted at Source.
The income (interest) earned on bank RD is fully taxable. The tax is deducted at the bank is called TDS.

How much amount of RD interest is tax-free?

The bank cannot deduct TDS if the interest earned from all the FD’s with a bank is less than Rs. 40,000 in a year. The limit of income is Rs. 50,000 in a year for senior citizens.
Bank cannot deduct TDS if the individual holding the FD has an overall income less than the taxable income provided he submit Form 15G or 15H.

What is Form 15G?and 15H?

The Form 15G is a document mentions net taxable income of the individual is nil. If your age is above 60 you need to submit Form15H. We can submit Form 15G & 15H online through internet banking with ease.

What is the percentage of TDS?

Banks deduct 10% of the income or the interest earned on the RD as TDS. The TDS is deducted at the time of crediting the income into your account.
Bank deducts 20% TDS if the account holder does not submit PAN card to the bank.

What happens if I break my FD before maturity?

There are two drawbacks of breaking RD before maturity.
*We are going to get less rate of interest.
The less the period of RD lesser is the rate of interest we get.
*Penalty for breaking the RD.
Bank deducts 1% to 2% penal charges from the income earned on the RD.

Where can I open an RD?

RD can be opened in Banks, NBFC’s and Post Office.

What documents required for opening an RD?

Generally, you need to have a Saving Account with a bank to open an RD.
The following documents are required to open an RD in a bank.
-Proof of age and Identity: –Voter ID, PAN Card, Driving license
-Proof of address: Adhar Card, Electricity Bill.
-PAN card
-Photographs

What are the benefits of RD

-RD is considered one of the safest instruments of investment.
-RD ensures fixed returns.
-It is available online as well as offline.
-It is the most convenient option for parking funds.
-The rate of interest is fixed.
-Documents required to open an RD are easily available.
-One can easily borrow against RD to fulfill short-term needs.

-All the benefits if FD.

-It is flexible like a saving account allowing us to submit cash multiple times.

What are the limitations of RD?

The amount once invested cannot be increased within the same account.

-The income generated may be Taxable.
-Breaking an RD leads to loss of income.
-The rate of return is less as compared to other -instruments like mutual funds, bonds, stock markets, real estate, etc

What are the best RD accounts in India?

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