Every person always wants to invest & grow money or create wealth. Recurring Deposit is one of the instruments for money growth.
In the initial days of earnings, there will be a limited income. And one must have the habit of saving at that early age which lasts longer.
Recurring Deposit :
Recurring Deposit (RD) / Cumulative deposit is a small tool / scheme / an investment idea to start with. This is provided by Banks & Post offices. Interest earning is at an attractive rate & it will be similar to the Fixed Deposit (FD) rate of interest. You can choose the Bank / Post office at your own convenience.
Recurring Deposit is a monthly deposit. The duration of this is a Minimum of One year & Maturity will be 1 year to 10 years depending upon the banks. The longer the maturity you select, the Rate of interest will be less.
Income Tax: TDS is not deducted from interest on Recurring Deposit. The interest on RD is always Taxable.
The Interest is always calculated on a quarterly basis & gets compounded in the next quarter. That is the reason; this is a very attractive scheme of investment with growth at a compound rate of interest.
You can also withdraw before maturity (pre-maturity closure / pre-maturity withdrawal) by deduction of 1% on interest rate applicable, till the period of deposit. Also, if the delay or non-payment of the monthly amount happens, then the charges are levied. But in any case, your deposited amount will get affected.
What to do with Maturity Amount?
After the Recurring Deposit gets matured, invest the same amount in Fixed Deposit (FD) for the term (number of year/s) wherein you get the higher interest rate & keep on renewing on every maturity unless you require the money.
Keep on investing the matured amount of Recurring Deposit in Fixed Deposit (FD), unless the funds are required & again go for new RD.
Click here to check-in HDFC Bank RD calculator
Click here for Post Office recurring deposit interest rates.
My view :
If you want to start with the deposit of ₹ 1,000 p.m.
- Start with 1st Recurring Deposit of ₹ 500 for 2-3 months.
- Then start with a 2nd Recurring Deposit of ₹ 300 for 2-3 months. Now here there are 2 RD’s of ₹ 800 p.m. separately.
- Then after 6 months start 3rd Recurring Deposit of ₹ 200. Now you have 3 RD’s altogether of ₹ 1,000 separately.
The purpose of this division is…
- 1st time if you start with ₹ 1,000, you may feel the burden or may not pay or skip one of the months & will end up paying the charges.
- If you want to discontinue, you will come out of Systematic deposit schemes & may never think of it.
- It is for a small amount such as ₹ 500, ₹ 300, & ₹ 200, in case of fund shortage, you may skip only 1 RD so that the charges on other RD’s won’t get charged.
- Also if there is pre-matured withdrawal, you may withdraw any 1 or 2 RD’s, & balance is can be continued & you always will be in Systematic deposit schemes.
