While investing money, we need to take a decision that may help us achieve our financial goals. If you want to earn good returns without putting a large sum at one go, then a recurring deposit (RD) could be one of your best bets. It is safe and ensures returns good enough to meet your short-term financial goals.
RD is a form of term deposit and allows you to make regular deposits and earn good returns without any risk. You need to contact a bank to open an RD account. However, knowing how to get the most out of your investment is crucial. Here are some tips to help you make the most out of your Recurring Deposit (RD) account.
Choose the right bank
Once you sign up for a recurring deposit scheme, every month, the agreed amount will get deducted from your savings account and be deposited into your RD account. It is essential to choose the bank that gives you hassle-free services.
Compare the interest rates offered by the bank and other terms and conditions of the recurring deposit account. The interest rates vary from bank to bank. So, opt for a bank that gives you the most competitive rate on your RD. The RD rates currently range anywhere between 5.5% and 7.5%, depending on the bank.
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Keep tenure aligned to your goals
Banks typically give you a minimum of six months or 12 months and the maximum tenure can go up to 10 years. You must select the tenure carefully, considering your financial goal. For example, if you need to pay your child’s education fee in 12 months, you can choose that as a tenure. Choosing the suitable tenure and amount will help you get the returns you need to meet a specific need.
Choose RD amount wisely
Before signing up for an RD account, you must remember that a particular amount of money will get deducted every month. The deduction will be regular till your RD tenure matures. Choosing the wrong amount might put a financial burden on you. Invest the money you can regularly commit to your RD without affecting your current cash flow for other necessary expenses.
Adhil Shetty, CEO, BankBazaar.com, says, “Recurring Deposits offer guaranteed, liquid returns and may be ideal to fund short-term goals spanning 1 to 3 years. This investment can help you take care of expenses, such as house renovation, children’s education or wedding, travel, etc. The returns offered by an RD are similar to those offered by fixed deposits (FDs). But Recurring Deposits, unlike FDs, don’t require a lumpsum deposit. You can start an RD for a denomination allowed by your bank, after which the deposit amount gets deducted from the bank account to which the RD is linked. At the end of its tenure, you will get the maturity amount which includes the deposit and interest.”
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Avoid premature withdrawal
It is crucial to lock your money in a recurring deposit account till it matures. Till it is an emergency or financial stress, you must avoid premature withdrawal of your deposits in an RD account. Premature withdrawals may invite penalties. So, calculate your returns and align them with your goals.
Flexi Recurring Deposit
Some banks give you the option of flexi recurring deposits. You can opt for this option if you wish to increase your recurring deposit amount every month to target a higher amount at maturity. However, you must not stress your other investments and opt for this option only when you have surplus funds to increase every month.
Loan Facility
Your RD comes with a loan facility. You can take a loan on the 80-90% value of your RD. However, it advisable to use this option only when are in dire need of funds.
Nomination Option
Always make sure that you have added a nomination in your RD. If something happens to you, your nominee will get the money. This is important to safeguard your investment.