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.