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Saving money regularly can be challenging, especially when expenses continue to accumulate. But having a system to build your savings step by step makes things easier. That’s where a Recurring Deposit (RD) comes into the picture. It helps you save a fixed amount every month and earns you interest, similar to a fixed deposit, but with added flexibility. If you are someone who wants to save money without putting in a large amount all at once, a recurring deposit might be the right option for you.
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What Is a Recurring Deposit?
A recurring deposit (RD) is a savings plan offered by banks and post offices. It allows you to deposit a small, fixed amount each month for a specified period. In return, you earn interest, which is compounded quarterly. When it matures, you get back the total savings plus the interest earned. It’s simple, safe, and helps create a habit of regular saving. Since the amount is fixed, you can easily plan your monthly expenses around it.
How Does a Recurring Deposit Work?
A simple way to understand how an RD works is to consider depositing ₹1,000 every month for two years. The bank will add interest to the balance every quarter. Over time, this amount grows into a larger sum without much effort on your part.
The interest rate varies across banks but is typically similar to that of fixed deposits. So, the longer your deposit term, the more interest you earn. You can choose terms ranging from 6 months to 10 years.
Why Choose a Recurring Deposit?
There are many reasons to start an RD, especially when you’re starting to manage your own money. Here are a few benefits:
- Regular savings habit
By investing in a recurring deposit each month, you can develop the habit of regular savings. This commitment can also help you develop strong financial discipline.
- Low investment required
The initial investment requirement in a recurring deposit is quite low. You do not need to invest a huge lump sum all at once. Instead, you can start an RD with as little as ₹500 in most banks.
- Guaranteed returns
Recurring deposits offer a guaranteed rate of return. This is because the interest rate is fixed when the deposit is opened, and therefore, no market risk is involved.
- Easy to open and manage
An RD is quite easy to open and manage digitally. You can open it online or by visiting the bank. Payments can be automated too.
How to Open a Recurring Deposit?
Given the numerous benefits, you may want to open a deposit account at your bank. Fret not, because opening an RD is a quick and simple process:
1. The first step is to choose a bank that offers good interest rates. If you have had a longstanding relationship with any bank, it may offer you better interest rates.
2. The next step is to evaluate your monthly budget and find out your disposable income. Based on this, you should decide on your monthly deposit amount and duration.
3. After this, you can proceed to fill out the application form online, either using a computer or a mobile phone.
4. Finally, you should consider setting up a monthly auto-debit from your savings account.
Once your RD is active, the monthly deposit will be deducted automatically. You just need to keep your savings account funded.
Tips to Maximise Your RD Returns
- Compare interest rates across banks before opening your recurring deposit.
- Opt for a longer term if you don’t need the money soon.
- Avoid breaking the RD early to get the full interest.
- Make sure your savings account always has enough to cover the monthly deposit.
Recurring Deposit vs Other Savings Options
You might wonder how a recurring deposit compares to other savings plans. Here’s a simple way to look at it:
- Recurring Deposit vs Fixed Deposit
A fixed deposit needs a lump sum. An RD lets you save smaller amounts regularly.
- Recurring Deposit vs Savings Account
An RD gives a higher interest rate than a regular savings account.
- Recurring Deposit vs Mutual Funds
Mutual funds may offer higher returns, but they also carry risk. An RD is safe and stable.
Key Takeaway
An RD is not just about putting money aside—it’s about building a strong habit of saving regularly. It doesn’t require a significant investment to get started, and it helps you work towards your goals without pressure. Whether you’re saving for something personal or just want to grow your money slowly and safely, an RD is a good choice to consider.
