What is Recurring Deposit (RD)?

Recurring deposit is a type of investment in which fixed amount on monthly basis is invested for specific period of time. Generally, bank offers this deposit scheme. Bank deposits this amount in investor's deposit account and credits interest amount at the time of maturity. The scheme offers interest credit option on quarterly, semi-annually, annually or lump sum at the time of maturity. Interest credit as a lump sum at the time of maturity is more beneficial as capital invested and interest earned both are compounded.

What are main highlights of Recurring deposit scheme?

  • What are benefits of recurring deposit?

    • Recurring deposits investment scheme has minimal risk as there is no linkage to the share market volatility.
    • If you have some extra bucks remaining from your monthly earnings which can be kept aside then this offers good option to earn some more money over it as bank pays you interest over this amount.
    • A good investor should distribute the savings into various investment options. There are many other options available as SIP in mutual funds, gold savings scheme in the monthly investment schemes along with RD (Recurring Deposit). But other options has some linkage over market volatility and thus has high earnings with high risk factor of losing the money. However RD can give you less money with minimal to zero risk.
  • How to open recurring deposit?

    • Term deposit account of investor is opened at the bank by submitting a hard copy of application form at the branch. Some banks offer account opening as a online process if investor already has any other type of account associated with bank.
    • Bank fixes the rate of interest applicable. (It can vary with tenure selected).
    • Investor has to choose monthly investment amount and tenure.
    • Investor can specify interest credit option as monthly, quarterly, annually or as a lump sum at the time of maturity.
    • When tenure is over bank pays back the money and credits interest earned to investor account.
  • Example of RD investment:

    • Let us discuss further with real time example. An investor has capacity to invest 5000 per month. This money is invested in the Bank RD (Recurring Deposit) scheme with tenure of 2 years and rate of interest (roi) as 8.1 % per annum. Investor has chosen interest credit option as re-invest and accepts to get it back as a lump sum amount at the time of maturity. i.e after 2 years with quarterly compounding. You can use our RD calculator to compute it yourself. So over 2 years of time investor pays 5000 * 12 * 2 = 120,000 as a principal amount and earns total of 10,594.03 as interest. Thus his maturity value will be 130,594.03 which will be paid after 2 years as a lump sum amount. Please refer below image from our calculator screen. RD calculation Image.