Recurring Deposits are one of the financial instruments offering steady income gains without risks. Benefits include higher interest than Savings Accounts, almost zero risk, and safety. These are beneficial to achieve short to medium-term financial goals such as paying children’s fees. Almost every bank offers this product.
A Recurring Deposit is where customers can invest money in instalments. When opening an RD Account, you can choose the monthly instalment amount and the tenure for which you will deposit it. You must deposit the amount periodically throughout the tenure. In the end, you receive the maturity amount, which is the principal and compounded interest amount.
Understanding the benefits
You can save in small instalments and gain assured returns if you do not have a huge investment corpus. Let us understand the benefits of investing in this instrument:
Online investment
Almost every bank has initiated its Banking app, making RD investments much smoother. You can easily follow the steps through the bank’s mobile app to open an RD Account, set monthly instalments and tenure, and start investing. Online investing in RD is hassle-free, secure, and time-saving.
Low tenure
Many financial instruments need your commitment for at least 12 to 24 months. However, this is not the case with RD. The minimum period of deposits is as low as six months. They give you flexibility in the investment tenure per your financial planning. You can earn assured returns over the tenure as these are risk-free.
Almost zero risks
Your investment in a Term Deposit Account is as secure as a Savings Account. Unless the bank where you opened the account collapses entirely, which is highly unlikely in the case of reputed banks, there are virtually no risks to your investment. Moreover, Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a specialised division of the Reserve Bank of India, provides complementary insurance of Rs. 5 lakh to all account holders for each bank, so you can diversify your exposure to multiple banks to avoid bank collapse risk.
Achieving short-term goals
Opening a Recurring Deposit Account will be helpful if you want to save money for short-term goals like home renovation or a wedding. Upon maturity, you will have a lump sum in your hand. You can opt for an RD to achieve the financial goals you set for the next one to three years. The maximum tenure for RD is generally 10 years. Based on your goals, choose your tenure.
Senior citizen benefits
Even senior citizens can now open Recurring Deposit Accounts and gain higher interest than general investors. If the interest earned on it is more than Rs. 50,000, a TDS of 10% gets deducted from the total interest earned. No matter how much you invest in this scheme, you will earn assured returns to fulfil your financial needs.
Conclusion
RDs are low-risk investments offering decent returns. Determine your financial goal before comparing them.
