There are many benefits of recurring deposit.
Most banks have a very low amount of monthly installment. Some banks even have recurring deposit schemes where the installment frequency is quarterly or half yearly. This ensures people with low amount of savings can also invest in such schemes.
Goal based saving
One of the best benefits of recurring deposit is that it helps with goal based savings. Regular monthly installments earn interest and work towards building a corpus for the short term. Installments can be planned so that a required corpus is built up for use in the future. To check the maturity amount for a given installment amount, you can use a recurring deposit interest calculator which is available for free on major bank websites. By using this calculator, you can plan your finances so that your monthly investments build up to the amount you need.
High rate of interest
Recurring deposits earn the same rate of interest as fixed deposits. Thus, these can be used effectively as a tool to earn income. Interest is compounded quarterly on the investments made which helps the investor to earn on interest as well as the principal. Senior citizens can get a higher rate of interest on their recurring deposits.
Saving for minors
Most banks allow recurring deposits to be opened by minors with a joint holding by the parent or the legal guardian. This helps to build investments for the minor’s use.
A recurring deposit is an excellent way of ensuring disciplined investing. Since the installment amount for a recurring deposit has to be paid on the same day every month, the investor is forced to put aside that amount. It inculcates discipline and a savings habit to the extent of the installment amount.
Most banks offer a loan facility on the recurring deposit amount. This loan is given up to 95% of the recurring deposit amount. This can be resorted to in case of any emergency.
Easy to open
Opening a recurring deposit is extremely simple. You do not need to have a savings bank account in that particular bank to open a recurring deposit account. Opening a recurring deposit account can be done online via net banking of the particular bank. In case it is not possible to open it online, you can visit the bank branch, fill up the recurring deposit form and submit the required documents along with a cheque for the installment amount.
The recurring deposit benefits to tax are available when it comes to TDS. Banks deduct tax on the recurring deposit interest only when it exceeds Rs. 10,000 in a particular year. If the total interest amount does not exceed Rs. 10,000, then they do not deduct tax. Also, no tax is deducted if the depositor submits Form 15G/15H certifying that their income is below the no tax limit.
Recurring deposits come with a nomination facility. This means the recurring deposit amount will be paid to the nominee in case of death of the deposit holder. Setting up nomination for a recurring deposit is very simple. This detail can be provided while opening the recurring deposit account.
Deduction on interest earned
While the interest earned on a recurring deposit is chargeable to tax, interest earned up to Rs. 50,000 is deductible under Section 80TTB of the Income Tax Act for senior citizens. This provision ensures a higher amount of income remains in their hands.
A recurring deposit is an excellent investment option for people who have small savings and want to build up a corpus for specific goals