Recurring Deposit (RD) is the best investment to start with since it will help an investor with systematic and disciplined investment procedure. For the ones who are beginners to investments, they can opt for RDs.
What is a Recurring Deposit?
Recurring Deposit is another form of Fixed Deposit (FD). It is an ideal alternative for investors looking to deposit a fixed amount every month into a bank account and earn interest on it basis the rate of interest applicable. When you open a Recurring Deposit account with your bank, your basically agree to deposit a certain amount in the form of installments, every month into the account on a particular date as decided by the investor, for a specific period of time.
RD can be opened by a single person or a parent in the name of a minor. Nomination facility is also available for an RD.
To deposit money on monthly basis, you do not have to go to the bank physically. You can open your account Online and link it to the Savings Bank account and your bank will automatically deduct the amount on the date specified. You just have to ensure that you have enough balance in your account. If in case you fail to have enough balance in your account, there might be a small penalty for each month that you skip to pay. You would not lose your existing money; you would only have to pay extra charges when you continue.
Interest on RDs
The interest which you earn on RDs is predetermined and would normally be the same as the one applicable for fixed deposits. At the time of opening the RD account, the bank itself suggests the maturity value and the rate of interest. The repayment of maturity value of deposit relies on payment of ALL the installments on time.
The interest earned on your RD is taxable which depends upon the personal tax bracket you belong to. However, the bank doesn’t deduct any tax at source; you have to proactively declare this interest income when you file your taxes.
Use Recurring Deposits for fulfilling your short-term goals
When planning for a short-term goal, Recurring Deposit is the ideal product to opt for. These may include renovating your home, down payment for a new home, saving for your higher education or to get married.
Keep an eye on the penalties charged
RDs are the very simple to open and almost all the banks have this facility. But at the same time, they do come with certain hidden charges. For example, if you plan to withdraw certain amount from the RD account before the tenure finishes, you might be charged with some charges. It is better to know these rules before opening an account in order to be better prepared for the future.