This page provides all the details you need to know about the Bank Recurring Deposit scheme.
Table of Contents
What is RD?
RD stands for Recurring Deposit.
RD is a savings scheme where you can deposit a fixed amount every month for the chosen tenure.
In this scheme, the interest earned will be compounded on a quarterly basis.
This scheme is suitable for those who wants to save small amount every month and then receive a big amount at the end of the tenure.
How does RD work?
Choose the monthly deposit amount
Choose the tenure
Deposit the fixed amount every month for the chosen tenure
At the end of the tenure, you will get the maturity amount (deposit amount + interest earned)
Safe investment option
Quarterly compounded interest
Helps you to save small amount every month and creates the habit of regular savings
Senior Citizens get extra interest rate compared to other customers
RD can be used as a security to get loan
Income Tax Benefits
Income tax benefits will be same on both old and new tax systems.
No income tax benefits on the monthly deposit amount.
There is a TDS (Tax Deducted at Source) from Bank if the interest received is more than Rs. 40,000 in a financial year. This is for ordinary citizens. The new TDS limit of Rs. 40,000 is from 01-Apr-2019 onwards. Earlier, the limit was Rs. 10,000.
For Senior Citizens, TDS limit is Rs. 50,000 from 01-Apr-2018 onwards. Earlier, the limit was Rs. 10,000.
Bank will provide TDS certificate for the tax deducted.
Interest received is taxable. You need to declare the interest income under "Income from other sources" during tax returns and pay the income tax as per your income tax slab.
Depending upon the term of RD, you can choose to pay tax either on maturity or every financial year.
Who can open the account?
Resident individual can create an account for himself
Joint account can be created by 2 or more individuals
Minimum monthly deposit amount is Rs. 100
No limit on the maximum monthly deposit amount
Monthly deposit amount should be in multiples of Rs. 10
Once you decide the monthly deposit amount, it can not be changed later on
Penalty for Non-deposit
You have to pay penalty charges if you do not deposit the regular monthly deposit amount for a particular month.
You can choose the Term from 6 Months to 10 Years.
Minimum Term - 6 Months
Maximum Term - 10 years
Term should be in multiples of 3 months. For example, 6, 9, 12, 15 and so on
Quite a few Banks offer terms up to 20 years.
Interest Rate (%)
Interest rate will be same as that of Fixed Deposit for the tenure of RD.
Interest rate (on the day of account opening) will remain the same throughout the tenure of RD. It will not change even if there are changes to the interest rate thereafter.
The interest rate varies from one Bank to another Bank. Check with your Bank for the latest interest rates.
Quarterly compounding frequency is followed in this scheme.
Interest Credit Method
You will receive interest amount upon maturity of the scheme (along with the deposit amount).
Pre-mature closure rules will be same as that of Fixed deposit accounts.
Premature closure of RD account is possible. But, there will be penalty for doing so.
The penalty amount is generally 1% of the interest earned.
Interest will be payable for the duration for which the RD account was kept minus the penalty amount.
The penalty amount may change from time to time.
Loan facility is available up to 90% of the account balance amount (total deposit amount + accrued interest) in RD account.
RD accounts can be transferred from one branch to another branch free of cost.
Nomination facility is available in this scheme.
You can nominate either at the time of account opening or after opening the account (but before maturity).
NRI (Non Resident Indians) can not open residential RD accounts. But, they can open NRI Recurring Deposit and it is a different scheme altogether.