Last Updated on February 26, 2024 by Sravan
Everyone has Goals. It may be either Long term or Short term.
There may be some situations when you want to buy a Good Apple Laptop or buy a piece of fancy jewelry within a span of 1-2 years for the girl. But you may end up with short of funds.
Instead of worrying about lack of money, let’s handle such responsibility by knowing about the “Recurring Deposit Scheme”.
And also learn
– To whom RD is meant for,
– How much is the Minimum deposit,
– How are the Interest rates?
I’m going to cover many things including whether Fixed deposits or Recurring deposits which is better.
Let’s get started..!!
1. What is meant by Recurring Deposit?
When you have some money in hand, then, you can deposit a fixed portion of money into the bank on a regular basis to earn some decent and safe returns on the money deposited is called a “Recurring Deposit (RD)”
The Recurring Deposit is meant for both the Salaries persons as well as for the Businessmen, who get their regular income. It is also for the persons who can not accumulate Lumpsum amount to fulfill their Financial goal which may be either Short term or Long term. The Recurring deposit (RD) scheme is designed for themselves only.
This Recurring Deposit (RD) is a Term – Deposit and also an Investment cum Savings scheme.
In this scheme, if you have to deposit a fixed single amount of either Rs.1,000, Rs.2,000, Rs.5,000, or any other amount every month, then, you will earn Interest along with the deposited amount at the RD maturity time.
You can invest in this online through your bank account. And also, you can also open it in Public sector banks, Private sector banks, and Post office saving banks as well.
2. Minimum & Maximum deposit
Recurring deposit in SBI
Minimum Limit – SBI
Is there any Minimum amount to be deposited into it?
The Minimum amount you need to deposit every month varies from bank to bank.
In the case of the State Bank of India (SBI), the Minimum Recurring deposit start from Rs.100/- per month only.
Maximum Limit – SBI
What is the Maximum amount one can deposit into SBI RD?
There is no Maximum limit to deposit in the State Bank of India (SBI). No Upper Limit. You can deposit any amount.
Recurring deposit in Post Office
Minimum Limit – Post Office
In the case of the Post office, the Minimum Recurring deposit start from Rs.100/- per month or any amount in multiples of INR 10/- only.
Maximum Limit – Post Office
What is the Maximum amount one can deposit into Post Office RD?
There is no Maximum limit to deposit in the case of the Post office as well. i.e. No Upper Limit. You can deposit any amount.
Recurring deposit in HDFC bank
You can start with an investment of Rs.1,000/- a month and in multiples of Rs.100 after that. The Maximum you can invest in a Recurring Deposit account is Rs 1,99,99,900/- a month.
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3. Time period/ Tenure
For how long do I need to hold the Recurring deposit..!
You have to select the Tenure for which you want to hold depending on your financial goal.
For investments made through recurring deposits in SBI, you can hold at least for a period of 12 months and you can hold the same in SBI for a Maximum period of 10 years i.e. 120 months.
1. Through this, you can invest a fixed amount every month for your small or big financial goals and use it as a recurring deposit.
2. This scheme is for those who cannot save Lumpsum amount at once.
3. By doing this, there will be a chance to reach a financial goal. Let’s put one lakh rupees at once. It may not be possible for everyone. A recurring deposit is such a useful method for such people.
5. Recurring deposit Interest rates
How much interest can you expect from the Recurring Deposits?
The rate of interest one can earn through recurring deposits will be decided according to the period of your deposit. Whereas, you can expect a Rate of Interest (ROI) between ROI 5-8%.
SBI Interest Rate:
The Rate of Interest as applicable to Term Deposits for Public and Senior Citizens will be applicable. As the Recurring deposit Minimum period is 12 months, the Rate of Interest applicable for the Recurring Deposits in SBI @ is 5.75%.
This interest is Compounded quarterly and the interest is paid along with the principal amount after the maturity of the period. In the case of Senior citizens, an extra 0.5% interest i.e. 6.25% will be offered. [Check for the Latest SBI term deposit rates here]
Post office RD Interest rate
From 01.04.2023, interest rates are as follows:-
6.2? % per annum (Quarterly compounded)
6. Other points
This recurring deposit creates a habit of financial discipline. And also you can have a Nomination facility for yourself.
Not only that, from the deposited Recurring deposit, You can also avail Overdraft or Loan facility which too only on 60-90% balance.
7. Delayed Payment
If the depositor does not pay continuously for three installments, then, the Recurring deposit account will not be closed but the deposited will be liable to pay Rs.10/- service charge per installment.
Also, there will be a penalty for SBI on the delayed payments.
Let me go through some cases, to understand better.
In case your RD tenure is five years or less, then, on every RD of Rs.100, you should pay Rs.1.5/- as a penalty.
That means, if you are investing Rs.1,000/- monthly RD, then your penalty will be Rs.15/- per month.
For the same if the RD is taken for tenure of more than 5 years then a penalty of Rs.2/- will be charged for every ?100 invested amount.
In the same way, if the monthly investment is Rs.1,000/-, a penalty of Rs.20/- will be charged every month.
In the State Bank of India (SBI), You need to pay a penalty for the number of installments for which you missed the payment, for all those months applicable penalty shall be paid as mentioned above.
8. Premature Withdrawal
If you withdraw the recurring deposit prematurely, it means that you have disturbed your financial goal. It is not advisable. But if the need arises, you can make a premature withdrawal.
But there is a chance of losing some money due to penalty and it will also change as per the different bank practices by the different banks. So, better don’t think of pre-mature withdrawal of Recurring deposits as it disturbs your financial goal.
9. Is RD better than FD?
The fixed and recurring deposits are very similar but can be differentiated by how money is invested. High-interest rates and a tax-saving facility are some of the best benefits of Fixed deposits (FD’s). A recurring deposit (RD) is best for those who prefer to invest in small amounts.
Then, Which is better Fixed Deposit or a Recurring deposit?
For this comparison, I am taking the State Bank of India as a base.
Fixed Deposits with SBI now offer for a period of 1-year term 3 – 5.75% interest. Even the same rates are applicable to RD’s. So the interest rate in both the cases is same and there is no change.
Then which one is better..!!
If you have a Lumpsum amount to deposit, then, Fixed deposit is a better option. In case you don’t have a Lumpsum amount, you need to deposit small amounts only, for such people, a Recurring deposit is the best option.
10. Which Bank is best for RD deposits?
Finally, Let’s see which bank offers more interest on Recurring deposits.
In this case, instead of SBI, Shriram Transport offers you 7-8.5% interest on recurring deposits.
Also, Bandhan Bank offers interest of up to 7.5%.
Author is a Qualified CMA with rich industry experience for more than 6 years. He is an All India Ranker (AIR-101) in CMA and also a Semi-Qualified Chartered Accountant having a quite good experience in teaching the subjects of Accounting and Costing to the commerce aspirants.