Varied types of RD accounts offer a convenient and disciplined way to save money and earn a fixed interest amount over the decided tenure. Unlike a regular Savings Account, an RD requires you to deposit a specific amount monthly for a period. This helps build a sense of discipline and eventually, a lumpsum amount to fulfil your financial goals.
What are the different types of Recurring Deposit Accounts?
Regular RD Accounts
These are the most basic and widely offered types of RD, and anyone above 18 years of age can start them. You need to choose a fixed deposit amount and tenure (usually ranging from 6 months to 10 years) and make consistent monthly deposits. The interest rate remains fixed throughout the tenure, making it easier to calculate your returns and ensuring you get the mentioned amount (except if tax is involved). It is important to understand that no additional amount can be deposited except the monthly amount during the tenure.
RD Accounts for senior citizens
Most banks offer higher interest rates compared to regular RDs and special RD schemes for senior citizens. This provides much-needed financial security for individuals over 60 and helps them maximize their returns. Also, as the interest in RDs is compounded, it is beneficial for senior citizens to build lumpsum amounts.
RD Account for minors
Banks and non-banking financial companies allow parents or guardians to open RD accounts on behalf of minors. This helps parents invest in their children's (individuals below 18 years of age) future needs. It also inculcates a habit of saving from a young age and provides a secure future for the child. The maturity amount can be used for the child's education, future expenses, or other needs.
NRE Recurring Deposit
Non-Resident Indians (NRIs) can open NRE RD accounts to save in Indian currency and earn interest. These accounts offer competitive interest rates and allow NRIs to manage their savings remotely. There are two types of NRI RD accounts:
- NRE RD: The principal amount and interest earned are fully repatriable, meaning they can be transferred outside India without any restrictions or tax.
- NRO RD: The principal amount is repatriable, but the interest earned is subject to tax in India.
Axis Bank NRE RD accounts allow you to start with a monthly instalment of ₹ 1000 and in multiples of ₹ 500 thereafter so you get the option of flexible monthly instalments.
Tax Saving Recurring Deposit Account
Though relatively uncommon, some financial institutions offer tax-saving RD accounts that help you save tax under Section 80C of the Income Tax Act, 1961. The most important thing here is to know that if the interest earned on the RD is more than 10,000, it is taxable. Such investment options usually have a lock-in period, and the interest rates on these RDs tend to be lower than those on regular RDs. You need to check these details from the bank you plan to invest in.
Benefits of RD Accounts
Recurring Deposit types offer several benefits, including:
- Discipline: The fixed deposit schedule encourages regular saving and helps build financial discipline.
- Guaranteed returns: RDs offer fixed interest rates, giving you certainty about your maturity amount.
- Flexibility: You can choose a deposit amount and tenure that suits your budget and financial goals.
- Compound interest: The interest earned on an RD is compounded, which means you earn interest on both the principal amount and the accumulated interest, leading to higher returns over time.
- Loan against RD: Some banks allow you to take a loan against your RD account, providing access to liquidity in case of emergencies without breaking your investment.
Also Read: A quick guide to Recurring Deposit (RD) premature closure or withdrawal
Different types of RD Accounts cater to various needs and financial goals. By understanding the different features and benefits of each type, you can choose the best option to achieve your financial objectives. Remember to compare interest rates, fees, and other terms between different banks and NBFCs before opening an RD account.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
