For most investors looking for a very low-risk investment with guaranteed returns, recurring deposit accounts are the way to go. Recurring Deposit or RD involves making regular deposits for a fixed tenure to earn handsome returns. Even though they have been around for a while, very few know about this flexible investment tool.
But what is meaning of recurring deposit?
An RD (Recurring Deposit) account is a financial instrument wherein investors deposit a fixed sum of money on a monthly basis. Compared to a fixed deposit, an RD account is a much more flexible way to build savings over time. This fixed deposit earns compounded interest on a quarterly basis. The fixed deposit amount and the tenure of the account are determined by the account owner when opening the account.
Now that you know RD account meaning, learn how you can open an account if your own. Follow these steps to open an RD account online:
1. Log in to your net banking or mobile banking app.
2. Visit the RD section and select the option to open and RD account.
3. Enter the required details, such as the monthly instalment amount and the tenure of the RD account.
4. Select the account from which funds are to be debited.
5. Review the entered information to ensure that all the details are correct.
6. Submit the application.
7. Once the RD account is created, you will receive a confirmation message via email or SMS.
8. The specified deposit amount will be debited from the selected account.
The following steps will guide you on how to open an RD account offline:
1. Visit the nearest branch of your financial institution or post office.
2. Complete the given application form with all the necessary details, including monthly fixed deposit and the tenure.
3. Provide the require documents, such as proof of identity and address.
4. Activate the account by making the first deposit.
5. Verify documents and receive passbook confirming your RD account.
Additional Read: FD (Fixed Deposit) vs RD (Recurring Deposit): Which Is Better?
RDs are also available in other types, based on the unique requirements of different investors as follows-
A recurring deposit for senior citizens carries the same features as a regular deposit, allowing senior citizens to deposit a certain amount in the account every month and generate returns over a fixed period. The only difference is a higher interest rate than regular RD.
The interest rates offered on senior citizen RD are typically 0.25% - 0.75% above the regular RD interest rates. Further, the interest is compounded quarterly, allowing senior citizens to enjoy a higher maturity amount to meet their financial needs seamlessly.
These accounts are available for individuals under the age of 18 and are opened under the supervision of their parents or guardians. It functions like a regular RD, except the interest rate might be comparable or slightly higher.
NRIs can invest in RDs in India through an NRE or NRO RD account. They can deposit a certain amount monthly to generate substantial returns over time.
Additional Read: SIP Vs Recurring Deposit – Which is Better
Here are some benefits of having a recurring deposit account-
1. Regularly investing in an RD account can encourage the habit of saving money.
2. There is no penalty for a missed instalment towards the RD.
3. You can start an RD with a monthly investment of as low as Rs. 500, which can vary depending on the financial institution.
4. It features a simple application process along with minimal documentation.
5. Fetch higher interest rates than savings accounts.
The following table illustrates the key features of an RD account:
| Feature | Highlights |
| Minimum investment | Recurring deposits are an excellent investment option for short-term and long-term financial goals as they don't require you to invest sizeable funds. A recurring account can be opened with an amount as low as Rs. 500. |
| Flexible tenure | An RD account offers the utmost convenience in choosing an investment term. The tenure can range from 6 months to 10 years, depending on your financial goals. |
| Lock-in period | A recurring deposit account comes with a lock-in period of 30 to 90 days, which can vary depending on the financial institution. |
| High interest rate | Recurring deposits attract higher interest rates than a savings account, making them ideal for savings and wealth creation. |
| Assured returns | A recurring deposit ensures returns on maturity. It is a fixed-investment plan, and the interest rates don't alter during the deposit tenure. Financial institutions compound the rate of interest on a quarterly basis, and you can withdraw the entire amount as a lump sum on maturity. |
| Loan Facility | Many financial institutions also offer a loan facility on recurring deposits. The deposit is used as collateral, allowing you to secure up to 80 or 90% of the deposit amount as a loan. |
Now that you're aware of what is recurring deposit here are a few factors you need to consider before moving forward.
Look for a financial institution that offers you the highest interest rates along with a flexible deposit tenure. This is because the rate of return can vary depending upon the chosen deposit tenure. Typically, mid-term deposits attract competitive interest rates over a longer term.
Further, choosing a suitable deposit tenure is also important because once you open an RD account, you are not allowed to change the tenure.
Most banks offer a premature withdrawal facility on your recurring deposit account. You will receive interest on your deposit based on the tenure completed. Moreover, an early withdrawal also attracts a penalty from the bank.
So it is crucial to invest in an RD scheme that offers a high interest rate and a low penalty for premature withdrawal.
Simply put, recurring deposit refers to a unique term deposit that allows you to grow funds by investing a fixed amount every month. The best part? It comes with flexible eligibility criteria, varying from one bank to another.
Recurring Deposits attract no tax exemptions. Income tax has to be paid on the Interest amount received from Recurring Deposits. The tax has to be paid at the rate of the tax slab of the RD holder. However, taxpayers whose annual income is below the tax limit can submit form 15G/15H requesting tax exemption.
So, what is a RD account? An RD is an excellent investment plan where you can gradually grow your funds for your short-term and long-term financial goals. And begin your investment journey with Tata Capital's Investment app. Through our app, you can check out a range of investment avenues based on your goals, including a recurring deposit.What's more, use our easy-to-use RD calculator to determine your monthly deposits and plan your investment accordingly. So, download our sip app and take a step towards smart investments today!
Banks determine the maturity amount on the RD based on the depositor's specified instalment amount, account type, and tenure.
You can save tax on regular deposits if the funds are deposited in the RD account for a medium to long-term period.
You can add nominees to your Recurring Deposit (RD) account at the time of opening it.
A Recurring Deposit (RD) is a savings scheme where you invest a fixed amount monthly for a specified tenure. It earns interest, and at maturity, you receive the principal and the interest accrued.
Yes, interest earned on Recurring Deposits is taxable as per your income tax slab. If the interest exceeds Rs. 40,000 in a financial year (or Rs. 50,000 for senior citizens), a 10% TDS is deducted by the bank.
RD is calculated using the compound interest method where the interest compounded every three months.
Missing an RD payment may result in undesired consequences, such as loss of interest, worsened reputation with the financial institution, and disruption in personal financial plans.
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Contact Us 
22 April 2025
8 mins read
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