Recurring deposit is one of the easiest ways to save money on a regular basis. It helps to form financial discipline and saving habits. You can set up a recurring account with as little as Rs.50 per month and can continue saving for up to 10 years.
While the interest rate on RD differs from bank to bank, interest on recurring account are higher than savings accounts. It is also the safest way to save and grow your money. Currently, the interest rate offered by the RD of major banks vary between 4.5% to 8.00%.
Just like savings account, recurring account also comes in different shapes and sizes and caters to the needs of the different sections of the individuals. Here are the few types of recurring deposits:
This is one of the most common types of recurring account and is available for individuals above 18 years. The RD holder can choose a deposit amount of their choice for a fixed tenure. At the end of the tenure, the account holder will receive a lump sum amount in the bank account which can used to fulfil various financial goals.
Just like students saving accounts, RDs are also available for kids and students. This category of RD is opened by the parents and guardians of the account holder towards their education and other future needs. Students can also handle these accounts and understand the basics of savings and inculcate positive money habits.
Just as the name suggests, senior citizen RD is available only for senior citizens. The account holders of this category of this recurring account receive a higher interest than regular RD. Senior citizens receive nearly 50 bps(basis point) higher.
While in a normal RD, individuals have to pay a fixed sum of money every month, it is not the case with flexible RDs. This type of recurring account has given the flexibility to deposit different sum of money at different intervals as per convenience. You can tag the flexible RD with a financial goal which will help you keep on track and achieve your goals faster.
Creating a saving habit is one of the biggest benefits of having an RD account. It inculcates a savings habit as a portion of the income is automatically debited from the savings account towards the RD account. As it comes with a lock-in period, it also helps the investors to stay put till the end of the duration.
RD is one of the safest investment options available to individuals. As it is not linked to the market, RD holders get a fixed interest rate which is based on the amount deposited and tenure. Typically, longer the tenure and higher the deposit amount, higher is the interest rate.
Opening a recurring account is extremely easy with online and app banking. All you need is an active internet connection and a savings account. You can just go to the bank app and open an RD. Just set the duration and monthly amount and that’s it. You now have an RD account.
After the RD matures, the entire amount along with the principal and interest is credited to your savings bank account. This lump sum payout can help you to fulfil your financial goals or start investing in higher yielding asset classes. You can also open an FD with the matured amount and earn higher interest rate. You can also opt to renew your recurring account. However, you should keep in mind that the interest received while renewing the RD may differ.
Banks also provide pre-approved loans to individuals with their RD account holders. If not, then the processing time is likely to be faster or get a loan at lower interest rate.
Here were some of the types of recurring account and benefits of it. Reap the maximum benefits out of your income by opening a recurring account today.
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