Benefits of Recurring Deposit: Low Risk, Easy Liquidity, Tax Saving

To save yourselves during rainy days, you need to have some back up. This is when the concept of RD or recurring deposit comes in handy. No matter if you are a salaried employee, a housewife, a student or a senior citizen, opening one RD account will add to your financial security. An RD account can be opened in as low as Rs. 500 monthly deposit making it a feasible investment option. In this blog, let us go through in detail what recurring deposit is and what are the advantages of recurring deposit for investors.

Benefits of Recurring Deposit: A Quick Snippet

Among many benefits of RD account, you get to enjoy the following:

• Attractive interest rates as high as 8.05%
• Disciplined monthly savings
• RD can start at an amount as low as Rs. 500 per month
• Easy liquidity options with small penalty
• Low risk and guaranteed returns
• 5 year RD tax exemption when opened with a post office.

What is RD?

RD or Recurring Deposit is a term deposit that allows investors to invest regularly in a savings plan for a predetermined time period. This savings mechanism is suitable for building a fund over time and earning interest on it over time. A recurring deposit account spans over 6 months to 10 years usually). The depositor gets the total amount (principal and interest) at the end of the maturity period. However, if required, they can withdraw before maturity after incurring a penalty or getting a lower interest rate. 

Benefits of RD

After going through the details of recurring deposit and its functioning, let us take a look at why it is so popular. Here are a few advantages of RD account attracting attention of investors across the nation.

High Interest Rates

When compared to a regular savings account, recurring deposits offer a higher interest rate. Each bank offers different interest rates based on your profile. Interest rates are generally higher if you are a senior citizen. Depending on the amount, tenure and user profile, the interest rates can go as high as 8.05%. You should check and calculate RD interest rate and maturity amount before opening an account with a particular bank.

Disciplined Savings

If you are saving up for your next gadget or just building funds for unforeseen expenses, opening an RD account would make a lot of sense. You will earn more interest rates than a savings account and put aside a certain amount regularly without any failure. This is a good foundation for those who have just started investing and have a low risk appetite. You end up developing a habit and accumulate funds for any planned or unplanned expenses.

Flexible Amount

You don’t need to put a big lump sum amount at once in a recurring deposit account. All you need to do is decide on an amount and deposit it regularly. You can start with as low as Rs. 500. Not only this, you can choose to deposit this amount monthly or quarterly.

For example: You can decide to deposit Rs. 2000 every month for 1 year at an interest rate of 6.50%. You will end up saving Rs. 24856 on maturity.

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Easy Liquidity

Another one of the benefits of recurring deposit is that you can withdraw RD prematurely. Although that comes with a penalty or a lower interest rate, you have access to the funds instantly. This works well in favour of those who have emergency or unplanned expenses.

Low Risk and Guaranteed Returns

That being said, unlike market based investment schemes, a recurring deposit guarantees returns. This is important to investors who have low risk bearing capacity. If you are looking for a predictable and stable investment tool, recurring deposit works to your advantage. 

Tax Benefit on RD

Opening a bank account with a bank may not give you any tax benefits, but opening an FD with a post office does. If you open an FD account with the post office for 5 years, you will end up getting a 5 year RD tax exemption under section 80c of the old tax regime. The deduction can be claimed for an amount of up to Rs. 1.5 lakhs in a financial year.

Who Can Open RD?

Any Indian resident, NRI, HUF, firms, trusts or minors (with guardian assistance) can open a recurring deposit account. Those who wish to open an RD account should produce valid identification proof, address proof for KYC and submit initial deposit amount.

Conclusion

In a world full of financial uncertainties, a recurring deposit is your safety net. It is easily accessible, reliable and rewarding. Whether you're just beginning your savings journey or looking for a secure investment avenue with steady returns, an RD account fits the bill. It offers a simple yet powerful way to build financial security over time. 

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