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What Is a Recurring Deposit (RD)?

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"Infographic illustration titled 'WHAT IS A RECURRING DEPOSIT (RD)?'. It depicts the process of making small 'Monthly Savings' into a piggy bank over a timeline of 'Months/Years', leading to a growing pile of money, and finally resulting in a treasure chest labeled 'MATURITY AMOUNT + INTEREST'. It highlights benefits like 'Small, Regular Savings' and 'Guaranteed Returns'."

What Is Recurring Deposit (RD)?

Author: @nkit

A Recurring Deposit (RD) is a simple savings plan offered by banks and financial institutions that lets you save money regularly and earn interest on it. If you want to save small amounts every month and earn guaranteed returns, RD is one of the easiest options to start with.

In this guide, you’ll learn what an RD is, how it works, its benefits, risks, and how to open one in India.

How Does a Recurring Deposit Work?

With an RD, you deposit a fixed amount every month into your RD account. Each instalment earns interest at the agreed rate, and when the RD matures, you get the total amount you deposited plus interest.

The interest rate on RDs is usually higher than a regular savings account but lower than long-term fixed deposits. The bank calculates interest monthly or quarterly depending on the terms.

Example of a Recurring Deposit

Suppose you open an RD by depositing ₹2,000 every month for 3 years. At the end of the term, you receive the total amount you saved (₹2,000 × 36 months = ₹72,000) plus the interest earned over time.

This makes RDs a disciplined way to save regularly and grow your money over a fixed period.

Key Features of RD

  • Fixed Monthly Deposits: You deposit a set amount every month.
  • Fixed Tenure: RD has a specific time period, usually from 6 months to 10 years.
  • Guaranteed Returns: You earn interest at a fixed rate agreed at the start.
  • Premature Withdrawal: Allowed by most banks, but may involve a penalty.

Benefits of a Recurring Deposit

  • Disciplined Saving: You save money regularly without thinking too much.
  • Safe and Predictable: Your returns are guaranteed.
  • Good for Short to Medium Goals: Useful for goals like vacations, education, or emergency funds.
  • Flexible Tenures: You can choose the period that suits your plan.

Interest Rates and Returns

Interest rates on RD vary from bank to bank and depend on the tenure you choose. Usually, longer tenures give slightly higher interest rates. Banks announce their RD interest rates publicly, and they may change over time.

The final amount you receive at maturity depends on the interest rate offered and your monthly deposit amount.

Who Should Consider an RD?

Recurring deposits suit:

  • Beginners who want a simple savings plan
  • People with regular monthly income
  • Those who prefer guaranteed returns over market risk
  • Savers with fixed financial goals

If you prefer predictable returns and want a disciplined plan, RD is a good choice.

Tips Before Starting an RD

  • Compare interest rates across banks before choosing.
  • Ensure you can afford the monthly instalments for the full tenure.
  • Check penalty rules for premature withdrawals.
  • Use automatic deductions if your bank offers them.

Final Thoughts

A recurring deposit is a simple, safe, and effective way to save regularly and earn interest. For beginners and conservative savers, it provides predictable returns and can be a stepping stone to more advanced financial goals.

Always plan your monthly budget first before committing to recurring deposits so you can stay consistent throughout the tenure.

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⚠️ This content is for educational purposes only. Please do your own research before making any financial decisions.

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