Recurring deposits or RD is a systematic investment plan for Indians. Anyone interested in opening a RD account can open it by submitting required documents to the nearest bank or post office.
In this article, we will let you know how to open a recurring deposit account in bank and post office, advantages and disadvantages associated to a RD account and Interest rates offered.
Before getting into all these questions and answers, let us first understand what is recurring deposits (RD) in India.
What is Recurring Deposit or RD
Recurring Deposits is a very simple investment plan where a investor deposit a fixed sum of money either with the Bank or post office for a predefined period every month. In return of his investment to RD account, the investor gets interest at a pre-defined rate.
How to open a RD account
All banks and post offices offer recurring deposit facility. You need to select the most convenient bank or post office.
While selecting we suggest you to look into certain factors like interest rates, convenience in operating, online deposit facility and any other personal requirements.
After choosing your bank or post office you are required to select the tenure for which you want to keep investing and the amount that you need to invest. Depending on your bank, you can invest for a minimum period of 6 months and up to a maximum period of 10 years.
If you are not withdrawing after maturity, then it will continue to have interest up to a period of 5 years even though you have not contributed anything to your recurring deposit account.
Interest to your recurring deposit account will be credited on quarterly basis.
To open your RD account, you can carry one address proof, one identity proof, PAN card copy, photos and the application form.
Rate of Interest on recurring deposit
Recurring deposits offer higher interest rate compare to investments in a saving bank account.
Rate of interest in RD depends on the prevailing market rate and vary from bank to bank. We suggest you to check the rate of interest with all banks before investing.
Advantages and Disadvantage of Recurring Deposit Scheme
Now let us know the advantages and disadvantages of investing in RD scheme.
Advantages:
- Higher interest compare to your saving account interest rate
- Low risk
- Loan can be availed by keeping your amount in RD account as security
Disadvantage:
- You are liable to pay tax on the interest amount earned on your recurring deposit investments.
- After investing, you cannot change the monthly investment amount
Also Read: TDS on Interest on Fixed deposit
Interest earned on recurring deposit investments are chargeable to income tax at the normal tax rate that is applicable to tax payer. At the year end, you are required to include interest amount under the head income from other sources while filling your tax return.
If you are an employee, then to avoid higher tax at the end of the year, we suggest you to declare your interest income on recurring deposits to your employer.
If you are looking for a periodical and systematic investment plan then RD is the best investment option for you. If you are a risk taker, then we suggest you to invest in SIP scheme of mutual funds for higher return.
