What is a Recurring Deposit? Meaning, Interest & Benefits for Savers

A recurring deposit helps you save money regularly every month. Banks offer higher interest rates than regular savings accounts.

Example: Meera opens a recurring deposit account with her bank. She deposits ₹5,000 every month for 12 months. The bank offers 6% annual interest rate. After one year, she receives ₹60,000 as principal amount. She also earns ₹1,950 as interest income. Her total maturity amount becomes ₹61,950. This shows how regular savings grow with compound interest.

Recurring Deposit Table
 

Recurring deposits encourage regular saving habits. They provide guaranteed returns on investments. Banks calculate interest quarterly on these deposits. This investment option suits salaried individuals perfectly.

1. How Recurring Deposits Work

Recurring deposits operate on a simple monthly savings principle. You choose a fixed amount to deposit each month. The bank sets a specific tenure for your deposits. Interest accumulates on your deposits throughout the period. The bank calculates interest quarterly on your growing balance. At maturity, you receive your total savings plus interest.

Example: Ravi opens a recurring deposit with his local bank. He deposits ₹3,000 every month for 24 months. The bank offers a 6.5% annual interest rate. His monthly deposits create a disciplined saving routine. The bank adds interest to his account every quarter. After two years, his investment has grown significantly.

Monthly RD Progress:
 

2. Interest Rates and Calculation Methods

Banks offer varying interest rates for recurring deposits. These rates typically range from 5% to 7% annually. The interest calculation uses the compound interest method. Banks add interest quarterly to your account balance. Senior citizens often receive higher interest rates. The final maturity amount depends on your deposit frequency.

Example: Priya compares different banks for her recurring deposit. She plans to deposit ₹5,000 monthly for 36 months. Bank A offers 6% interest rate. Bank B provides a 6.5% interest rate. The difference significantly impacts her final returns. She chooses Bank B for better growth potential.

Interest Rate Comparison:
 

3. Benefits of Recurring Deposits

Recurring deposits offer numerous advantages for regular savers. They create disciplined saving habits among account holders. The guaranteed returns provide financial security to investors. Banks ensure principal protection throughout the investment period. These deposits help achieve specific financial goals systematically. The flexible tenure options suit different saving requirements.

Example: Anjali uses recurring deposits to save for her daughter's education. She deposits ₹8,000 monthly for 60 months. The guaranteed returns help her plan confidently. She faces no market risks with this investment. The disciplined approach builds a substantial corpus over time. Her investment grows steadily without any volatility.

RD Benefits Analysis:
 

4. Eligibility and Documentation Required

Banks maintain simple eligibility criteria for recurring deposits. Indian citizens above 18 years can open accounts. Minors require guardian signatures for account opening. NRIs can also open these accounts with restrictions. Joint accounts allow family members to save together. The documentation process remains straightforward and quick.

Example: Suresh wants to open a recurring deposit account. He visits his bank with the required documents. His Aadhaar card serves as identity proof. His PAN card provides tax identification details. Bank statements show his income source. The account opens within 30 minutes of documentation. He starts his monthly deposits immediately.

Documentation Requirements:
 

5. Comparison with Other Investment Options

Recurring deposits compete with various savings instruments. Fixed deposits offer similar safety but require a lump sum. Mutual funds provide higher returns but involve market risks. PPF offers tax benefits but has longer lock-in periods. SIPs in equity funds give higher growth. Each option serves different investor preferences and risk appetites.

Example: Deepak compares recurring deposits with other investment options. He evaluates returns, risks, and liquidity factors. RD offers guaranteed 6.5% returns with complete safety. Equity SIP might give 12% but carries market risks. PPF provides 7.1% with tax benefits but a 15-year lock-in. He chooses RD for its safety and flexibility.

Investment Comparison:
 

Conclusion

Recurring deposits provide excellent savings opportunities for regular income earners. They offer guaranteed returns with complete principal safety. The disciplined monthly deposit system builds strong financial habits. 
 

Banks make the process simple with minimal documentation requirements. Every saver should consider recurring deposits for achieving their financial goals successfully.

FAQs
 

1. What is a recurring deposit? 

A recurring deposit is a monthly savings scheme offered by banks.

2. How much money can I deposit monthly? 

You can deposit from ₹500 to any amount monthly.

3. What interest rate do banks offer on RD? 

Banks typically offer interest rates ranging from 5% to 7% annually.

4. Can I withdraw money before maturity? 

Yes, but banks charge penalties for early withdrawal.

5. Is my money safe in recurring deposits? 

Yes, banks guarantee the complete safety of your deposited money.

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LoansJagat Team

‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.