Under a Recurring Deposit account (RD account), a specific amount is invested in bank on monthly basis for a fixed rate of return. The deposit has a fixed tenure, at the end of which the principal sum as well as the interest earned during that period is returned to the investor. Recurring Bank Account provides the element of compulsion to save at high rates of interest applicable to Term Deposits along with liquidity to access those savings any time. Since a recurring deposit offers a fixed rate of return, it does not provide protection against inflation.
There is great flexibility in period of deposit with maturity ranging from 6 months to 120 months. The minimum monthly deposit varies from bank to bank. In most of the public sector banks, one can start a Recurring Deposit Account with a monthly installment of Rs. 100/- only. There is no upper limit on investing. The rate of interest varies between 7 and 11 percent depending on the maturity period. Loan/overdraft facility is also available against Recurring Bank Deposits.
The deposit for RD account is paid in monthly installments and each subsequent monthly installment has to be made before the end of the calendar month and is equal to the first deposit. In case of default in payment, penalty is levied for delayed deposit at the rate of Rs. 1.50/- for every Rs. 100/- per month for deposits up to 5 years and Rs. 2/- per Rs. 100/- in case of longer maturities.
In case of Recurring Deposit being closed before completing the original term of the deposit, interest will be paid at the rate applicable on the date of deposit, for the period for which the deposit has remained with the Bank. Premature withdrawal is also permissible but penalty is levied. TDS is not applicable on Recurring Deposits.
How to open a RD Account
A Recurring Bank Deposit account can be opened at any bank that offers this facility. However, some banks insist that you open a savings bank account with them to operate a Recurring Deposit account.