Recurring Deposit Account

A Recurring Deposit is an investment option for people of all age groups. Most Indian banks, NBFCs, and post offices provide this investment option to their customers. It is a good option for people who wish to save some money and earn a reasonable return on investment. A recurring deposit account is thus a great tool for inculcating a habit of saving regularly. It is a safe and risk-free investment option for those who want assured returns at maturity as recurring deposits are not dependent on the stock market. Now let us have a look at the details of this investment option.

What is a Recurring Deposit Account?

A recurring deposit account is opened in a bank, a non-banking financial company (NBFC) or a post office. Once opened, the account holder is expected to deposit a certain amount of money every month for a fixed period which ranges from six months to ten years. The amount of money deposited depends upon the account holder and is pre-determined at the beginning of the tenure. Once money starts accumulating, the interest is compounded quarterly. When the tenure of the deposit ends, the account holder receives a lump sum amount that includes the principal amount and the interest. This investment scheme is a good choice for people who do not have a large amount of money to deposit but want to save a small amount every month without draining their pockets. 

Features of Recurring Deposit Account

Every bank or institution has their own set of features for the recurring deposit scheme they offer. Therefore, it is advised that one must explore the features provided by a few chosen banks to identify the bank that is providing the best offer. Here are the salient features of a recurring deposit account:

• A recurring deposit account is opened for a fixed period. It could range from a period of 6 months to 10 years. The customer can decide the term of deposit, i.e., the time of maturity. This flexibility is helpful as one can decide when they would like to withdraw the money. 
• The rate of interest offered by the banks on a recurring deposit may vary from time to time. It typically ranges between 2.5% to 7%. However, it is usually similar to that offered for a fixed deposit which is generally more than what is earned when money is kept in a savings account.
• Senior citizens often enjoy a higher rate of interest compared to regular citizens.
• One can decide the amount of money they wish to deposit every month. The bank usually has a set minimum deposit amount.
• Partial withdrawal is not allowed. However, the account holder has the option of withdrawing all the money before the term is complete in case of an emergency. The bank may have certain conditions for doing the same. It may deny payment of the interest if mentioned in the clauses for premature withdrawal of funds.
• Some banks also allow customers to take a loan against their recurring deposits. The loan amount is approximately 80-90% of the amount accumulated in the account.
• Automatic monthly payments from the savings account to the recurring deposit account is possible by giving standing instructions to the bank.
• An individual can open multiple recurring deposits. 
• Parents and guardians can opt to open a recurring deposit account in the name of their minor children.

Advantages of Recurring Deposit Account

• Hassle-free process: Opening and closing a recurring deposit is not difficult, especially if one wishes to open a deposit in the same bank where they have a savings account. The documentation required is minimal. 
• Online account management: With most banks providing online banking facilities, it becomes easier to keep track of the account and carry out transactions. 
• Great for short-term goals: This investment option is great if someone wishes to save money for short-term requirements like college fees or a vacation, down payment of a home, or building an emergency fund.
• Better returns: Keeping money in a savings account long-term does not fetch good returns. A recurring deposit delivers better returns on investment without putting the money at risk.
• Low deposit amount: A person can open a recurring deposit account with as little as 100 rupees in some banks. This is specifically helpful for people who wish to save penny by penny without compromising expenditure on essentials.

Conclusion

Recurring deposits prove beneficial for people who wish to have a disciplined approach towards investment. One has to make deposits every month compulsorily. Banks would otherwise charge penalties if they failed to do so. Investing hard-earned money must be done carefully after exploring all possible options. After knowing what a recurring deposit account is, one can weigh its pros and cons, compare it with other investment options, and decide which one to go with. It is also imperative to get relevant details from the bank or post office as interest rates and features vary substantially.