Introduction-
Recurring Deposit Schemes (RD) aim to develop regular habit of saving among peoples. This is a special kind of medium term deposit which is offered by banks, post offices in India. Under this scheme you can invest regularly on monthly basis a fixed amount for a fixed period. You can open various recurring deposit accounts.
After completion of tenure, the account holder get an amount which can be further invested in other investment schemes like Monthly Income Scheme, Public Provident fund, Fixed Deposit, National Saving Certificate etc. or any tax saving plans, to get an exemption under section 80C of Income tax. This scheme is useful for every one whether he is minor, senior citizen or persons who has low income.
First thing to keep in mind is-
"Start early with a small amount of investment and continue for long term".
For Example 1- Mr. Ram has invested an amount of Rs. 2,000 on monthly basis in a recurring deposit scheme for 5 years, after 5 years he has getting an amount of Rs. 1,43,000 Approx. If he has further invested the same amount in monthly income scheme he can get a regular monthly income. This monthly income can be further invested in another Recurring deposit scheme.
Who can open the Recurring Deposit Account-
- Anyone can open the account.
- Account can be opened in the name of minor and a minor of 10 years and above age can open and operate the account.
- Joint account can be opened by two adults.
Minimum or Maximum amount-
Minimum INR 10/- per month or any amount in multiples of INR 5/-. No maximum limit. Minimum amount that can be invested varies from bank to bank.
The Government has increased interest rate for the 1st quarter of 2023-24, the average rate of interest varies between 5.0% to 7.50% subject to the conditions. It can vary from bank to bank and tenure of deposits. The interest rates for senior citizens deposits are higher than the regular account. Interest is compounded on quarterly basis.
For Example 2- Mr. Ram has invested an amount of Rs. 1,000 on monthly basis in post office recurring deposit scheme for 5 years, after 5 years he has getting an amount of Rs. 72,505 i.e. (725.05 per Rs. 10 amount of investment).
Term period of Deposit-
Minimum period is 6 months and maximum is 10 years. The term periods are divided into three categories-
- Short-Term : A short-term tenure usually lasts from 6 months to a year.
- Medium : A medium-term tenure usually lasts from more than a year to 5 years.
- Long-Term : A long-term tenure lasts from more than 5 years to 10 years.
Online opening Facility-
Banks also provide online facility for starting recurring deposits. There is no restriction to open how many recurring deposit accounts.
Loan Facility-
Yes you can avail loan facility against deposit amount. It can be 80%-90% of deposit amount.
Premature Facility-
- Premature withdrawals are allowed under recurring deposits but the rate of interest that is received will be the one applicable to the period for which the deposit has remained with the bank.
- 1% penalty will also be levied by the bank for premature withdrawal.
TDS on Interest Income u/s 194A-
- TDS should be deducted @ 10% if the total amount of interest exceeds Rs. 10,000 in a financial year.
Income tax Benefit-
- The investment in recurring deposit schemes is not eligible for tax deduction limit.
- Senior citizens can avail income tax exemption up to Rs. 50,000 under section 80TTB for Interest income earned during the financial year. No TDS will be deducted under section 194-A, on interest income from Saving/FD’s/RD’s etc. from Banks, Co-operative societies engaged in banking business or post offices up to the amount of Rs. 50,000 during any financial year.