Recurring Deposit is a special kind of Term Deposit offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits. It is similar to making FDs of a certain amount in monthly installments, for example Rs 1000 every month. This deposit matures on a specific date in the future along with all the deposits made every month. Thus, Recurring Deposit schemes allow customers with an opportunity to build up their savings through regular monthly deposits of fixed sum over a fixed period of time.Minimum Period of RD is 6 months and maximum is 10 years.

The Recurring Deposit can be funded by [Standing order (banking)|Standing instructions] which are the instructions by the customer to the bank to withdraw a certain sum of money from his Savings/ Current account and credit to the Recurring Deposit every month.

When the RD account is opened, the maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates. If any installment is delayed, the interest payable in the account will be reduced and will not be sufficient to reach the maturity value. Therefore, the difference in interest will be deducted from the maturity value as a penalty. The rate of penalty will be fixed upfront. Interest is compounded on quarterly basis in recurring deposits.

Features and Benifits of Recurring Deposit

• Interest Rate of 2.5% to 7.0%...
• Minimum Monthly Deposit Amount of Rs. 100/-
• Investment Tenure of Recurring Deposit 6 Months to 10 Years
• Interest Compounding Frequency is Quarterly
• Partial Withdrawal are not allowed
• A single account holder can open any number of RD accounts.
• Premature withdrawals are allowed subject to a penalty.
• Overdraft or loan facilities are available on RD balance.
• Senior citizens may get an additional 0.5% interest rate.

Eligibility Criteria to Open an RD Account

• Resident Indians
• Senior citizens
• Minors under the supervision of parents/guardians
• Non-resident Indians

Advantages of RD Accounts

• Inculcates the habit of saving.
• Penalty is not imposed if you miss the RD instalment for a month.
• Expect an interest rate that is higher than that of a savings account.
• It takes as low as Rs.100 to start a recurring deposit account.
• Great savings option to attain your short-term goals.

Disadvantages of RD Accounts

• Withdrawing within the lock-in period does not give any returns.
• Partial and premature withdrawal comes with a penalty and is subject to certain criteria.
• Instalment amount is fixed.
• Interest rate is lower as compared to other investment products.