Features of recurring deposit account:
- A recurring deposit account can be opened for as less as Rs. 100 depending on the bank.
- The installment in most recurring deposit accounts is fixed and has to be deposited on the same day every month. Some schemes allow quarterly or half yearly installments.
- All the recurring deposit installments mature on the same day.
- The tenure for a recurring deposit is flexible and depends on the depositor. Banks may have a minimum tenure for an RD, but the ultimate tenure fixed depends on the depositor and his need for funds.
- The rate of interest for recurring deposits is around the same rate as a fixed deposit account.
- No tax is deducted on the interest earned on a recurring deposit account if the amount of interest does not exceed Rs. 10,000. A depositor can submit Form 15G/15H for exemption from tax deduction. Form 15G/15H states that the depositor’s income is below the no tax limit and the bank should not deduct tax on the interest earned.
- The depositor can avail a loan against the recurring deposit up to 95% of the recurring deposit amount.
- The interest earned on a recurring deposit amount is added to the taxable income of the depositor.
How to open recurring deposit account in bank:
Opening a recurring deposit account is an extremely simple process. To make it easy for all types of depositors, banks have made it possible to open an RD account online and offline.
How to open RD account online:
It is very convenient to open an RD account online via net banking. Before opening an RD account, it is important to check the rate of interest for different tenures. Many banks also have a recurring deposit interest calculator where you can check the final maturity amount and the interest on the deposit.
To open RD account, you need to log in to net banking. Depending on the bank, the net banking structure will be different. You need to select the option to open a new recurring deposit account. Once you select that, you need to decide the installment amount and the tenure. You will also need to select the account to link to your RD account i.e. current account or savings account.
One important thing to remember is to specifically choose ‘Senior citizen’ option if you are eligible. Most banks give a higher rate of interest to senior citizens.
The next important point to remember is the maturity instructions. Depending on whether you immediately need the funds or not, you can opt for a maturity of the entire principal and interest amount, or convert the entire amount to an FD. You also have the option of converting the principal amount only into an FD. If you decide to convert it into an FD, then you need to decide the tenure for the FD as well.
The last detail you need to take care of is the nomination details. It is recommended to set up a nomination for your investment especially if you have an account under a single name.
Once these details are entered, you need to submit it and the bank debits your account. Once the account is debited, the RD gets created.
How to open RD account offline:
Opening an RD account offline is also very simple. All you need to do is go to the bank branch and fill up a form for opening a recurring deposit account. You need to fill up the required details and submit it to the bank along with a cheque for the installment amount. If you are a customer of the bank then you need to put in your bank account details along with other details such as maturity instructions and nomination details.
If you are opening an RD account in a bank in which you do not have an account, then you will have to provide your KYC documents along with the account opening form and other details. You will need to decide the RD tenure, the installment amount, the nomination details and the maturity amount. You will need to either give standing instructions to your bank for a periodic debit to the bank account or personally deposit money in your RD account to ensure the installments are met. If you want to get an exemption from TDS on your interest, be sure to submit Form 15G/15H.
Once the RD is processed and opened, the bank will provide an RD certificate bearing all the details.