What is a Recurring Deposit?
Recurring Deposit, commonly known as RD is an investment method with low risk and moderate returns. An investor is free to choose the tenure as well as the amount they wish to deposit. It is similar to a monthly savings scheme and is offered by most banks and multiple NBFCs (Non-Banking Financial Companies).
A Recurring Deposit (RD) stands out as a widely favoured, low-risk investment choice, available from both traditional banks and non-banking financial organizations. In this investment option, a fixed amount is deposited into the account each month, and the investment duration can range from six months to a decade.
RDs prove advantageous for individuals aiming to steadily amass funds on a monthly basis, especially for achieving short-term financial goals. Notably, the interest rates on RDs consistently surpass those earned through regular savings accounts, presenting an attractive option for investors. Additionally, RD interest rates align closely with the potential returns achievable through Fixed Deposits (FDs).
How does a RD work?
When you invest in an RD, you have to deposit a fixed sum, every month, till the end of the term you have chosen. The interest for a RD is calculated once every quarter of the fixed term.
What to check before investing in a RD?
Listed below are the most important factors you need to check before opening an RD account.
- Term period: For a RD you choose the term according to your goals, and since it is not easy to withdraw an RD before the term ends. The terms for RDs are generally divided into three categories. The first is short term RDs, which last from 6 months to a year. The second is a medium term which extends from 1 year to 5 years. The third is long term which has a duration from 5 years to 10 years.
- Interest rate: This is the second factor you need to focus on, since you need to know how much you are going to earn, when you invest a certain sum for the specific amount of time. Different banks and NBFCs offer different rates of interest.
- Withdrawing before term ends: Most banks offer a chance for premature withdrawal, however, the penalty charges for each bank varies. Therefore, choose an institution which charges low penalty, so that you do not have to pay a lot in case you need to withdraw early.
If you are still not sure if Recurring Deposits are the right investment option for you right now, talk to our experts at DailyFinserv, and start building your wealth.
