What is Bank Recurring Deposits?
Indians put their priority in saving money in case of future needs or emergencies. But not many have the means to open a fixed deposit with a large sum of money. With a will to save, an individual with small deposits at a timely interval can gather a handsome corpus. For such individuals the Recurring Deposit is a great way to invest their savings.
It is type of term deposit instrument offered by banks to encourage savings among people who have smaller but recurring incomes. This account allows the person to put a fixed amount regularly every month or year for a relatively long time after which the money comes back to time with a substantial portion of interest earned over the term.
Risk averse investors, expecting steady returns and who can invest regularly for 5 years or more.
- Those looking to build a corpus over a long period, regardless of earning inflation beating returns.
- Those who can make a lump sum deposit.
- SIP in Debt Mutual Funds (better yet unassured returns)
- Post-office recurring deposits
- Risk Appetite – The risk involved is absolute[bare?] minimum.
- Returns – Pre-determined interest rate for the tenure of the deposit.
- Taxability – There are no tax benefits for the deposits. The interest earned will be taxable as income from other sources.
- Lock-in Limit – The duration varies between 6 months to 10 years.
- Withdrawals – Access to funds will be subjected to penalties.
- Investment Safety – The investment is completely secure up to Rs. 1 lakh.
- Inflation Cover – When inflation is above interest, the account earns no real returns.
The most important reason to open an account is the automatic access that it offers to other financial instruments such as investments, loans and savings. Additionally, the account can be used to make financial transactions as well as to park a portion of savings to meet short-term needs and contingencies.
|Qualification||Indian Residents with a Saving Bank account
|Age Group||-Individuals over 18 years of age.
-Guardians can open accounts for minors.
|Fee structure||-Minimum amount is Rs.1000.
-Special interest rates for senior citizens
-No maximum limits
|Interest Rate||The current rate ranges from 6.25 - 6.75% p.a depending on the deposit duration.
|Time Period||6 months to 10 years.|
|Closure||Premature exit permitted with penalty.|
|Account Holding Types||Individual (Minors through a guardian)
Companies/ associations/ trusts
Hindu Undivided Family (HUFs) uninvolved in trade or business.
|Nominees||This provision is available.|
Capital & Inflation Protection
Your capital is completely safe as a sum of maximum 1 Lakh only is insured by the DICGC.
The deposit is not protected against inflation as it yields positive returns only when the rate of interest is more than that of inflation.
Pre-defined interest rates through out the investment tenurity decided at the time of account opening.
The account has limited liquidity as it comes with a predetermined lock-in period and withdrawals are subjected to penalties.
- There are no tax advantages on this deposit.
- The interest amount is treated as income from other sources and taxed accordingly.
- The tax is deducted at source (TDS) at the rate of 10% when interest is above 10,000 or 50,00 in the case of senior citizens.
New Account Setup Information
- How to open?
An account can be opened in any Nationalised, Private-Sector or foreign bank with a chosen nominee and completion of the KYC process with your current bank.
- How to operate?
Start a deposit with a cheque issues through your current savings account. Further deposit can be made through a direct debit from savings account with specific instructions.
- E-banking or internet banking enables the user to open the account conveniently with a default payments made through existing savings bank account.
- It allows you to access your account, transfer funds and withdraw or redeem the investment at the end of the tenure.
- The deposits can be made with either a cheque, money transfer or Electronic Clearing Services (ECS).
- A bank recurring deposit offers guaranteed returns with maximum leave of safety.
- Senior citizens relish an exemption on interest upto Rs.50,000.