Types of Recurring Deposit (RD) Accounts in India

Types of Recurring Deposit (RD)

A recurring deposit (RD) is a simple and disciplined way to save money on a monthly basis and earn guaranteed returns. It suits individuals who prefer low-risk, consistent savings over a set period of time. With their flexible tenure options and fixed interest rates, RDs can be an ideal choice for goals (such as education, travel, or emergency funds). There are several types of recurring deposit accounts you can choose from, as per your income, goals, and life stage. Let’s explore these various types of RDs to help you choose the right one.

Types of Recurring Deposits

Here are the different types of RD account options available in India:

1. Regular Recurring Deposit

This is the most common RD option. You deposit a fixed amount each month for a specified tenure, which can be between 6 months and 10 years. The interest is usually compounded quarterly, and the maturity amount is paid at the end of the term. This type suits salaried individuals or anyone with a predictable monthly income. You can set the recurring deposit through a bank account, and the deposits can be automated with standing instructions.

2. Recurring Deposit for Minors

Parents or guardians can open this type of RD account on behalf of children. It can help build a future fund for expenses, such as higher education or marriage. The guardian manages the account until the child turns 18 years of age. This can be a solid and stable investment plan to instil financial discipline in children and create a sense of ownership over their savings.

3. Senior Citizen Recurring Deposit

This RD is designed specifically for people aged 60 and above. The major benefit is a higher interest rate, usually between 0.25% to 0.75% more than a regular RD. It helps retirees earn regular returns at a stable rate without market risk. Another benefit is that a recurring deposit comes with the option to earn interest payouts periodically - which makes this a safe income-generating option after retirement.

4. NRE/NRO Recurring Deposit

NRI Recurring Deposits offer convenient saving options tailored to the needs of Non-Resident Indians. NRIs (Non-Resident Indians) can open two types of RD accounts depending on their income source:

NRE RD (Non-Resident External): This RD is used to deposit income earned outside India. Both the principal and interest are fully repatriable and exempt from Indian tax.
NRO RD (Non-Resident Ordinary): This RD can be used to deposit income earned in India (such as rent, dividends, or pension). However, the interest is taxable in India.

5. Flexi or Variable Recurring Deposit

In these types of recurring deposit accounts, instead of a fixed sum, you can contribute a minimum amount monthly and increase it whenever you have surplus funds. It can be ideal for freelancers or small business owners with fluctuating income. Interest is calculated based on the total amount and tenure. This is among the most flexible recurring deposit types as it gives you control over how much you save each month.

6. Recurring Deposits with Monthly Interest Payouts

Most RDs accumulate interest and pay it at maturity. However, some financial institutions may offer RDs that pay interest monthly, especially for high-value deposits. This type of RD can be beneficial for retirees or individuals seeking a regular income. The interest rate might be slightly lower than cumulative RDs (where the interest is paid out at maturity). However, the monthly payout adds a certain level of liquidity.

Basics of RD

Taxation on RD

Can I get my interest amount on a monthly basis?

Answer: Yes, you can receive interest on a monthly basis if you choose a Monthly Interest Payout Fixed Deposit or a similar scheme offered by banks or NBFCs. In regular fixed deposits, interest is usually paid at maturity or quarterly. However, if you opt for the monthly payout option, the interest is calculated and disbursed every month. This is ideal for individuals seeking regular income, such as retirees. You may check with your bank for such schemes.

What is the minimum tenure for a recurring deposit?

Answer: The minimum tenure for a recurring deposit (RD) in most banks is 6 months. Some banks may allow RDs starting from 3 months, but 6 months is the standard lower limit. Tenures can range up to 10 years depending on the financial institution.

How to open a Recurring Deposit account in India?

Answer: To open a recurring deposit account in India, visit your bank's branch or use its mobile/internet banking platform. Provide KYC documents (like PAN and Aadhaar), choose the deposit amount and tenure, and set up standing instructions for monthly payments.

Is the Post Office RD the same as a bank’s?

Answer: No, the Post Office RD scheme is not exactly the same as a bank's RD. While both require monthly deposits and offer fixed interest, the post office RD scheme is government-backed, has a fixed 5-year tenure, and offers uniform interest rates nationwide, unlike banks which offer variable tenures and rates.

How to save tax on RD?

Answer: Recurring deposits (RDs) themselves do not offer direct tax benefits under Section 80C of the Income Tax Act. The interest earned on RDs is fully taxable as per your income slab and is subject to TDS (Tax Deducted at Source) if it exceeds the threshold limit set by the bank.

Types of Recurring Deposit (RD)