What is a recurring deposit?
A recurring deposit is an easy investment and savings option. It is an investment tool that allows you to deposit regularly and also earn flexible returns simultaneously. You can easily open multiple recurring deposit accounts, but the minimum amount to invest can vary. It is very similar to fixed deposits. A recurring deposit is the best investment option as it takes only a little effort each month to save for your future.
It is an ancient method savings scheme that is followed in India. Before the current systematic investment plan (SIP) of mutual funds, the recurring deposit was always known for being a regular savings scheme with a guaranteed interest rate. A recurring deposit is very similar to a fixed deposit.
With the help of a fixed deposit, you will be able to save a lump sum of money that you had for a fixed tenure and interest rate. However, when it comes to the recurring deposit, you will be investing a fixed amount each month for a fixed tenure. With the help of a prediscussed interest rate that will grow into a lump sum amount at the end of tenure. A recurring deposit is the most used investment option. It takes only a small effort each month to save for your future.
Although, recurring deposit schemes offered by the banks are one of the most popular investment options chosen by most people. A salary person, as well as people with lesser income, prefer RDs as their investment too. In this scheme, an individual has to invest a fixed amount of money every month for a period of time and earn interest on their investment. The principal amount that comes along with interest is returned after the maturity of the RD.
Here are some of the advantages you should know of recurring deposit:
- With a minimum investment amount, you can deposit every month in the RD scheme as low as Rs.1000. It is a significant attraction for people with low income and salaried people.
- The investor has to invest a part of the income regularly. It is highly beneficial in including the habit of saving.
- The payment of one’s RD account can be easily made directly from savings or current account.
- A recurring deposit account should be linked to one’s savings account. It does not require any such documentation with work under these circumstances.
- Whereas in a fixed deposit scheme, you can invest a lump sum of money at one time. When it comes to the recurring deposit, they do not burden the investor in any manner.
- Having mutual funds and stocks are subject to market risks. In RD schemes, the deposited amount is safe and secured that will be returned along with interest at the end of affixed tenure.
- The rate of interest offered on a Recurring Deposit is as much as the interest offered for Fixed Deposits.
- The interest rate on the Recurring deposit is locked in. You need not worry about any fluctuations in the market.
- A recurring deposit is the best investment option for planning to tackle short-term financial situations like funding money for a dream vacation or wedding, higher education costs, etc.
- In a flexible recurring deposit scheme offered by some banks, the investor will not be held penalised even if he fails to deposit the amount in that particular month.
- When it comes to senior citizens higher rate of interest is given. It is generally 0.5% more than the regular interest which is given to others.
- TDS (Tax Deducted at Source) is applicable on all recurring deposits. It is deducted by 10% on the interest earned, which exceeds Rs. 40,000( Rs.50000 for senior citizens). This particular rule has come into effect since April 2019. However, there is no TDS deducted on an interest earned up to Rs. 40,000( Rs.50000 for senior citizens). It is done to safeguard the interest of lower-income investors.
- Is the recurring deposit interest taxable?: when it comes to recurring deposits, they attract no tax exemptions. The income tax has to be paid on the Interest amount which is received from Recurring Deposits. The Tax has to be paid at the rate of the tax slab of an RD holder.
- The investors must submit form 15G with no taxable income to avoid TDS on RD. However, the form 15G is applicable for people under the age limit of 60 years.
- Almost all the popular banks are now offering online Recurring Deposit facilities. With these online facilities, you can quickly deposit money in your recurring deposit account, close your RD account, view transactions, and update necessary information. It can be done from the comfort of your home, at your own convenient time, without the need to visit the bank during its working hours.
You can invest in recurring deposits as it will help you to save your hard-earned money. You can make small investments every month, resulting in getting you profit in the longer run. Shriram Transport Finance Company provides the best interest on recurring deposits. Open a recurring deposit account hassle-free with us.