What are Recurring Deposit Accounts? Who use Recurring Deposit Accounts? or RD accounts
These are popularly known as RD accounts and are special kind of Term Deposits and are suitable for people who do not have lump sum amount of savings, but are ready to save a small amount every month. Normally, such deposits earn interest on the amount already deposited (through monthly installments) at the same rates as are applicable for Fixed Deposits / Term Deposits. These are best if you wish to create a fund for your child’s education or marriage of your daughter or buy a car without loans or save for the future.
Under these type of deposits, the person has to usually deposit a fixed amount of money every month (usually a minimum of Rs,100/- p.m.). Any default in payment within the month attracts a small penalty. However, some Banks besides offering a fixed installment RD, have also introduced a flexible / variable RD. Under these flexible RDs the person is allowed to deposit even higher amount of installments, with an upper limit fixed for the same e.g. 10 times of the minimum amount agreed upon.
These accounts can be funded by giving Standing Instructions by which bank withdraws a fixed amount on a fixed date of the month from the saving bank of the customer (as per his mandate), and the same is credited to RD account.
Recurring Deposit accounts are normally allowed for maturities ranging from 6 months to 120 months. A Pass book is usually issued wherein the person can get the entries for all the deposits made by him / her and the interest earned. Banks also indicate the maturity value of the RD assuming that the monthly installments will be paid regularly on due dates. In case installment is delayed, the interest payable in the account will be reduced and some nominal penalty charged for default in regular payments. Premature withdrawal of accumulated amount permitted is usually allowed.