RD, or Recurring deposit is a trusted investment option for many age groups. Recurring deposits are those that you make regular deposits. RD is a service provided by banks that allows you to make regular deposits and earn decent returns.
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Let’s look at the question ‘What’s RD?’ and learn how to create an RD account.
What is a Recurring Deposit account?
The full form of RD is Recurring Deposits. You can make monthly instalments. Recurring deposits allow you to increase your monthly savings over a set period of time. This is how a recurring deposit works:
- You can pay monthly instalments after opening a Recurring Deposit account.
- A RD account’s tenure is typically between 6 and 10 years.
- Interest is earned on funds that are not used. It is typically compounded quarterly.
- You receive your investment and the interest earned over the course of the RD at the maturity date.
What is a Recurring deposit?
Customers can make recurring deposits and invest the amount they choose each month. This is the main difference between FD & RD.
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Recurring deposits are offered by many banks with tenures ranging from 6 months to 10 year. The interest rates are fixed throughout the tenure. The principal is paid at maturity. You can also choose to receive interest at regular intervals, or at maturity.
Recurring Deposit Account Features
These are the main features of a Recurring deposit account:
- Fixed Income Investments
Fixed-income investments include recurring deposits. This type of investment offers a guaranteed return at maturity. Before you invest the money, you will know the interest rate. The interest rates are fixed for the entire deposit period.
- Minimum Investment
Only Rs. 100 is required for an RD account to be opened. 100 per month. You have a large amount of income, such as Rs. Recurring deposits are a great option if you have 1000 to invest each month.
- *Time Period
A recurring deposit account can be opened for as little as 6 months, and can last up to 10 years. RD is Recurring deposit. This allows you to select the time period that suits your needs.
- High Interest Rate
Recurring deposits offer higher interest rates than regular savings accounts. The interest is compounded by most banks after each quarter.
- Lock-in Period
The lock-in period for a recurring deposit account is 30 days to three months. This period can be extended at the discretion of the service provider. Any withdrawals made within the lock-in period are not eligible for interest.
- Premature Withdrawals
Customers are permitted to withdraw their funds early under a recurring deposit without penalty.
- Loan Facility
Overdraft and loan facilities can be accessed against a regular deposit. Default payments are calculated against the funds in your RD account.
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What should you know about RD interest rates?
RD is Recurring deposit. This is a risk-free and popular investment. The interest rates charged by banks will earn you interest on the amount that you have invested.
After taking into account various factors like tenure and invested funds, the interest rates for a regular deposit are calculated. The following formula can be used to calculate interest:
- M = R ((1+i), n – 1)/ 1 – (1+i), -1/3
The formula is:
- M stands for maturity value
- R stands for monthly installment
- The number of quarters is indicated by a ‘n’.
- “i” stands for interest rate/400
Because RD interest rates are constant, recurring deposits offer guaranteed returns and security. Before investing in a recurring or renewing an existing deposit, it is important to compare the RD rates offered at different banks. To get maximum returns, it is best to invest with the highest interest rates possible.
Factors to consider before opening an RD account
Let’s now look at what RD is and what factors you should consider before investing in this program. These are the things you need to consider before opening an RD Account:
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- The investment amount
The minimum investment amount for a recurring deposit account is Rs. 100. A recurring deposit is an easy way to invest because it doesn’t require large amounts of money. Before opening an RD, it is important to determine your investment amount.