Recurring Deposits: SBI, ICICI, HDFC, Axis, Kotak Bank RDs and interest rates compared

Recurring deposits, like fixed deposits, are one of the most popular investment avenues in India, especially among the risk-averse investors who have limited income. Both of these products provide fixed returns with almost no risk and are offered by all the major banks and financial institutions, including SBI, ICICI,, HDFC and Kotak Bank. However, while FDs require investments in lumpsum at the beginning of the selected term, in case of recurring deposits a certain amount is needed to be deposited at regular intervals of the fixed term.

Financial experts say there are many people with limited means who want to save small sums of money regularly so as to be able to accumulate a little larger sum after some time. Due to lack of information and education, some people are trapped into chit funds for saving money regularly. Recurring deposits may be a good option for such people.

Suitability

“Recurring deposits are a good product for people with small means to save money regularly. As the name suggests, recurring deposits are deposits accounts where a fixed sum of money is deposited at fixed intervals. The time interval may be daily, weekly, fortnightly, monthly or quarterly depending on the convenience of the person who wishes to make such a deposit. This is in contrast to fixed deposits where a fixed sum of money is deposited at once and income therefrom accrues at fixed intervals as opted by the depositor. For most of the depositors, recurring deposits are the path to reach the target to make a fixed deposit,” says Balwant Jain, a tax and investment expert.

Thus, this product is suitable for people who have a small but regular income, like salaried persons or the daily wage earners like vegetable, milk, newspaper vendors etc. This product is prevalent in remote places where the newer financial products like mutual funds have yet not penetrated.

Also Read: Recurring Deposit Vs Fixed Deposit: Which is more suitable for you and how to get better returns?

Recurring deposits are, thus, best suited for small savers who cannot save enough to meet the minimum deposit criteria of fixed deposits. “The minimum monthly deposit of recurring deposits can be as low as Rs 50. They are also beneficial for those lacking financial discipline, given that they ensure savings by automatically deducting preset amount on pre-determined date. Moreover, the interest rate booked while opening a recurring deposit account remains applicable till the end of deposit tenure. Hence, each of the monthly installments earns booked interest rate, irrespective of change in deposit rates by the bank,” says Naveen Kukreja, CEO & Co-founder, Paisabazaar.com.

Interest Rates and Tenure

Interest on recurring deposits is paid at the time of maturity of the recurring deposit account. Interest accrues on each of the deposit made at the rate fixed at the time of opening the account. In other words, the interest on recurring deposits remains the same throughout the chosen term, unlike the interest rates of many other investment avenues which are subject to periodic change. RD is, thus, a suitable product for the people who have regular source of income unlike retired people who need regular inflow for meeting day-to-day expenses. For them fixed deposits are a more suitable product.

“A recurring deposit account can also be opened to get the periodical interest income credited in it like Post Office Monthly Income Scheme where a linked recurring deposit account can be opened and linked to get the monthly interest. A recurring deposit account can be opened in any post office or bank, including cooperative banks,” says Jain.

The tenure of recurring deposits usually ranges from 1 year to 10 years. However, you can prematurely close your recurring deposit account by paying a premature withdrawal penalty. You can also use your RDs for availing loans.

Here we are taking a look at the top RD rates offered by major banks:

It may, however, be noted that terms and conditions about renewal and withdrawal of recurring deposits may vary from bank to bank. Therefore, read them carefully before investing in any RD.