Everything you need to know about recurring deposits!

03 Jul 2019

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Looking for an easy saving tool? A recurring deposit (RD) may be the answer to your question. So, what is recurring deposit? An RD account is one where you invest a specific amount of money every month.

But what is RD account for, you ask? Well, you earn an interest on your saving. It is a simple investment tool that helps you learn the discipline of investing money every month as well as earn interest on your investments.

Almost all banks offer RD accounts. The interest offered is different for every bank. It usually lies in the range of 5 to 8 % per annum.

What are the features of an RD account?

There are several aspects to an RD account. Some of the main features are:

  • Minimum saving: You can start with a minimum saving of Rs10. It is a saving tool for all classes. An RD account gives you the chance to start saving low and grow eventually.
  • Tenure: The minimum period for which you can invest in an RD account is six months. You can invest for up to 10 years.
  • Interest rate: The interest earned on your RD account is comparable to other investment tools such as fixed deposits.
  • Discipline: RD accounts help you develop the habit of saving on a regular basis.
  • Loan against RD: You can avail a loan against your Recurring Deposit account, which acts as a collateral.
  • Withdrawal: You can only withdraw at the end of the tenure. While premature withdrawals are not allowed, some banks may allow you to withdraw prematurely against a penalty.

What are the benefits of RD account?

There are various advantages of an RD account. Let’s look at some of these advantages:

  • High returns: Most banks offer an interest on their RD account which is at par with other savings schemes such as the fixed deposit. Some even offer higher interest rates than savings account. You stand to earn high returns even by making small investments in the beginning.
  • Start low: You can start an RD with as much as Rs10. It gives you the freedom to start with small investments. So, what is RD account for? You make small investments every month and earn interest.
  • Simple process: Starting an RD account is very easy , especially if you have an existing savings account. In that case all you have to do is link the RD account to 6the savings account.
  • Good for short-term goals: You can start saving in an RD to fulfil your short-term expenses. It also helps you inculcate the habit of saving money regularly.
  • Save in piecemeal: An RD account lets you make small deposits at regular intervals, unlike other savings schemes that require you to deposit large amounts in a go. At the same time, the interest is at par with such schemes.

What is RD account if not an ideal saving tool for starters?

If you are new to investments and want to develop a habit of saving money, RD account is the right option for you. It is also ideal for people with low incomes who want to save money for achieving short-term goals.

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Difference between Fixed and Recurring deposits

Understanding the differences between fixed deposits and recurring deposits
The process of wealth creation requires discipline. Money must be put away systematically, over a period of time for wealth to grow. Whether you choose to invest in the stock market, commodities market, mutual funds or even opt for conservative methods of savings such as fixed deposits and recurring deposits; each way of savings comes with its own set of features and benefits. Most people begin with small monthly savings in the form of a recurring deposit, which they convert into a fixed deposit upon maturity. But this is just one way to go about it. In this article, we shall highlight the key differences between fixed deposit and recurring deposits. However, to do so, we need to understand what a fixed and a recurring deposit actually is.
Recurring deposit v/s fixed deposit
Fixed deposits or FDs (also so known as term deposits) refer to the financial instruments provided by banks through which one can lock away a sum of money for a specific duration and earn a monthly, quarterly, half-yearly, annual or cumulative interest at the end of the term. As the term ‘fixed’ suggests, one cannot withdraw money from a FD until the end of the term. Should you choose to ‘break’ your FD prematurely, you have to pay a penalty to the bank. A recurring deposit, on the other hand, refers to a disciplined way of putting away a fixed sum of money in an account every month. One needs to open a special recurring deposit account and can earn the same interest rate as offered on FDs. RDs are a great way to put away savings every month until a more substantial amount of money is accrued, which can then be put away as an FD.
FDs and RDs – key differences
Let us look at the main differences between FDs and RDS
The purpose of the deposit:  Investors can put away their idle savings in an FD and earn a specific rate of interest, which is higher than the interest accrued when the money is sitting idle in the savings account. RDs, on the other hand, allow one to inculcate a disciplined habit of saving a fixed sum of money every month.
The duration of the deposit: You can open a fixed deposit for a minimum duration of 7 days, whereas the maximum duration of the deposit is about 10 years. On the other hand, the minimum duration for the RD is six months, whereas the maximum deposit tenure is 10 years.
Renewals and withdrawals: With regards to fixed deposits; one can roll over a deposit for another term, which may be different from the original term chosen. If you do not opt to withdraw an FD, the bank can auto-renew the deposit, but the interest rate may be lower, higher or the same; depending upon the prevailing rate of interest as offered by the bank. However, if you choose to withdraw the deposit before maturity, you have to pay a certain penalty. With regards to renewals and withdrawals of RDs, it is possible for one to close an RD before the chosen term and reinvest it into a term deposit; the account holder can earn an interest rate, with a 1% reduction as penalty. Also, it is not possible to make partial RD withdrawals. However, should you need money urgently; you can take a loan against your RD instead of breaking the deposit and withdrawing the cash.
Keywords used
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Everything You Need To Know About Sovereign Gold Bonds

That Indians love investing in gold, is no hidden secret. We buy gold on big and small occasions. Gold is considered an excellent investment in India, irrespective of the form in which it is purchased. However, when you buy gold jewellery, you end up paying a lot more in making charges. How, then, can you benefit from gold in the long term? Well, you can invest in sovereign gold bonds. Let’s find out what is a sovereign gold bond and other essential facts about it.
What is sovereign gold bond?
Introduced in 2015 by the Government of India, sovereign gold bonds were launched under the Gold Monetisation Scheme. The Government issues gold bonds every year (since 2015). Gold is issued in tranches by the RBI, in consultation with the Government.
Under the scheme, bonds are denominated in multiples of grams with the minimum unit being 1 gram gold. The Government offers interest of 2.50% per annum on gold bonds, which is paid semi-annually.
Essential facts about the sovereign gold bond scheme
Having explained what is sovereign gold bond scheme, here’s a look at some crucial facts about this scheme.

Sovereign gold bonds are provided for tenures of up to 8 years. However, one may exit the bond only after the 5th year. You may exit the scheme only on the interest payment dates on the 5th, 6th and 7th year.
You may subscribe for a maximum limit of up to 4 kilograms gold if you are an individual subscriber or a member of a Hindu Undivided Family in a fiscal year (Apr-Mar). Trusts and charitable entities can subscribe for up to 20 kilograms of gold.
Under the Government Securities Act of 2006, Gold bonds are issued as stocks and investors are provided with a holding certificate for the shares issued.

Basic Features and benefits of sovereign gold bond schemes
Now that we know what is gold bond scheme let’s look at the basic features and advantages of the scheme.

You can hold your gold bonds in paper form or demat form, whichever you find convenient.
You can buy gold bonds in multiple weight denominations with 1 gram being the minimum weight.
Investing in the gold bond is rather flexible as you have the option to choose the amount you wish to invest
You can earn interest on your gold bonds semi-annually
You do not have to worry about storing the gold since it is issued in certificates or demat form and not in the physical form.
The sovereign gold bond scheme is backed by the Government, making it one of the safest schemes, in that the investor does not have to worry about the purity of the gold.
While the scheme matures after eight years, you can prematurely withdraw from it after five years

Final word: Knowing what is gold sovereign bond is essential before investing. Speak to your investment advisor before you invest in the scheme.
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