Types of Recurring Deposit Accounts
There are several types of Recurring Deposit (RD) accounts tailored to meet different financial needs and goals:
1. Regular recurring deposit account
Regular RD scheme is widely available in most Indian financial institution. Any individual above the age of 18 can open this account. To get started, you simply need to choose a recurring amount and a tenure. Interest can be calculated on a simple or compound basis. It is important to note that no additional funds can be deposited during the ongoing tenure. The deposit amount and maturity period may vary from different financial institutions.
2. RD account for minors
Some financial institutions allow individuals under 18 years of age to open an RD account under parental or guardian supervision. This provides parents with a financial avenue to invest in their children's education and other essential needs. The returns under this scheme are either comparable to regular RD accounts or potentially higher.
3. RD accounts for senior citizens
Designed specifically for seniors, these RD accounts offer exclusive benefits to individuals of 60 years or above. Most financial institution offer them a higher interest rate than regular rates. The interest gets compounded every quarter.
Bajaj Finance offers an additional interest rate of up to 0.40% p.a. on their FD for senior citizens.
4. NRE/NRI recurring deposit
The NRE recurring deposit scheme requires funds to be deposited from non-residential external (NRE) account. Most Indian banks offer a minimum tenure of 1 year, and the deposit amount and interest rates vary among banks. A major benefit of this scheme is that the interest earned by NRIs is not taxable in India. Some banks also permit variable monthly deposits in their recurring deposit accounts.
5. Flexi RD
Flexi RDs, or flexible recurring deposit schemes, give depositors the freedom to invest different amounts as they wish. You can decide the fixed investment amount and you have an option to choose how much extra to add each time. It is like having the flexibility to adjust your savings based on your financial situation while still earning a steady interest rate.
While the interest on the core amount is fixed, the interest on multiples of the core is calculated based on the investment period.
Also read: Systematic Deposit Plan vs RD
Benefits of RD Account
- RDs allow individuals to save money regularly, fostering a disciplined savings habit.
- RDs generally provides higher interest rate than that of a savings account.
- A recurring deposit account can be opened for as little as Rs. 100
- No penalties charges if you miss an RD payment for a month.
- RDs offer flexibility in choosing the deposit tenure, allowing individuals to align with their financial goals.
- Opening an RD account is easy, especially if you already have a savings account with the bank.
- While subject to penalties, RDs often allow for premature withdrawals in case of urgent financial needs.
