Recurring Deposit (RD) is a popular savings scheme that offers a fixed interest rate on the investment amount of regular instalments. The customer receives the maturity amount when the tenure of RD is over. At the time of maturity, the invested amount is paid back to the user along with accumulated interest.
Unlike mutual funds and stocks which are vulnerable to market risk, an RD investment is secure as principal and interest of up to Rs 5 lakh is secured by the DICGC. The minimum period of deposit starts at 6 months and can go upto 10 years. The rate of interest on RD is the same as Fixed Deposit (FD) and more than a savings account. The instalment amount cannot be changed once fixed.
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An RD account can be opened with a bank or post office. The RD offered by the State Bank of India (SBI) and Post Office are most popular.
SBI RD
An investor may start an SBI RD with a minimum investment of Rs 100 per month through recurring deposits for a period ranging from 12 months to 120 months. The bank provides interest rates ranging from 5.45% to 5.65% for general public and 5.95% to 6.45% for senior citizens.
An RD of 5 years with Rs 10,000 monthly deposit at 5.60% will accumulate to Rs 6.93 lakh. With an additional 0.50% or 50 basis points, senior citizens will receive Rs 7.02 lakh on the same account and maturity.
Post Office RD
Post office Recurring Deposit offer 5.8% per annum compounded annually. It has a maturity period of 5 years. The minimum monthly amount for opening Post Office RD is Rs 10 per which can be increased in multiples in multiples of Rs 5. For 5 year Post Office Recurring Deposit (RD) Account, the interest rate is 5.8% per annum which is compounded quarterly.
Rs 10,000 invested every month for 5 years in a post office RD will turn into Rs 6.96 lakh.
