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Need assistance in choosing the right insurance plan? Get a call from our Expert.

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Recurring Deposit - Features and Benefits of RD

Of the many financial products available in the investment market, a recurring deposit or RD is one of the oldest, most popular, and time-tested investment options. A recurring deposit account works the same for everyone and has no surprises or risks. This is why, it has been one of India’s trusted and chosen investments.

 

It is a non-market linked investment, which means it is free from any capital market risk and fluctuations – the bottom line being your money remains safe, and you get what you are promised. Read on to know the RD benefits and features to understand if it is the correct investment.

 
What is a Recurring Deposit Account or RD? How Does it Work?

 

A recurring deposit is a savings cum investment account offered by banks and non-banking financial institutions to those who want to keep their money saved and grow it simultaneously. A recurring deposit account works on the simple principle of compounding and offers a fixed interest rate.

 

All you have to do is go to the bank of your choice and ask to open a recurring deposit account. The bank will inform you about the tenure of recurring deposits. It will also show you the recurring deposit interest rates applicable for the financial year in which the term of the RD ends. You can choose a tenure ranging anywhere from six months to ten years.

 
What are the Recurring Deposit Interest Rates?
 

 

The RD full form means that a recurring deposit requires you to put money into the account in periodic instalments. Once you open a recurring deposit, you agree to deposit money into the account each month for a fixed tenure. So, if you open a recurring deposit account for two years, you will have to deposit money into it for 24 months. When the money gets deposited, it compounds the applicable interest rate over the years.

 

What are the Features Of Recurring Deposit Accounts?

 

Here are some of the features of recurring deposits:

 

  • Guaranteed1 returns

    One of the benefits of recurring deposits is the assurance of guaranteed1 returns. Because recurring deposits are non-market-linked investments, they provide the compounded returns promised to the investor at the start of the deposit’s tenure. This surety of getting a return on investment at the maturity of the RD investment plan is what makes recurring deposits a preferred investment option.

    With a Tata AIA Life policy, you can also get the dual benefits of guaranteed1 returns and life insurance coverage in a single plan.

 

  • Low risk

    Recurring deposits are safe because they are not linked to the capital market. So, any fluctuations in the equity, debt, hybrid, or commodities market do not affect recurring deposit interest rates and accounts.

    However, the downside is that the returns earned in recurring deposits are lesser than those accrued in market-related instruments. The maturity amount earned is guaranteed1.

 

  • Payment flexibility

    In a recurring deposit, you can deposit money in your account every month instead of making a one-time lump sum investment. Recurring deposits can accommodate a modest budget, and you can make a deposit of as low as ₹100 or 1,000. This flexibility of making periodic monthly payments makes recurring deposits a more convenient option than their counterparts, like fixed deposits.

 

  • Loan withdrawal

    Loan withdrawal is one of the RD benefits that come in handy. If you are facing a shortage of income or have to pay for an immediate emergency or requirement, you can rely on a recurring deposit account to borrow a loan.

    You can take up to 80% to 90% of the deposit value for the loan after submitting an application. The bank will treat the maturity amount payable at the end of the recurring deposit as collateral and issue the loan.

 

  • Goal-oriented savings

    Recurring deposits help you save and grow your wealth in a goal-oriented manner. You can choose to fulfil almost any goal with the money earned in a recurring deposit and align it as per your timeline.

    So, from higher education of a child to marriage, to world travel and retirement, and buying a dream home or vehicle to paying off any pending debts, a recurring deposit can be customised to realise any vision. There are other investments that can help you achieve this, like a ULIP  insurance policy or any other Tata AIA Life policy, for instance.

 

How to Set Up a Recurring Deposit Account?  

 

Nowadays, it is easy to set up a recurring deposit account. Earlier, you had the offline option where it was compulsory to go down to the bank, fill out a form, and deposit a cheque or hard cash. Now, you can avoid all that in-person hassle and save time by opening an RD account online. The online process might vary but will entail some common steps. All you have to do is:

 

  • Visit your bank’s website and log in to your account.
  • Click on the open an RD account option.
  • Enter details like the investment amount and the tenure, and link the bank account from which you want the funds to be debited.
  • Check the interest rate applicable, the maturity payable at the end of the tenure, and other terms and conditions before opening the account.

 

Once you open the account, you will receive a message/ confirmation of the RD activation and payment processes.

 

To Conclude              

 

A recurring deposit account is a very reliable way of keeping your money safe and creating consistent wealth for the short or long term. It is a very transparent and fuss-free financial instrument – and you get what you are promised from the start. If you are looking for good returns, you can opt for the ULIP policy, which offers the dual benefits of market-linked returns and life insurance coverage. 

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

Who is eligible to open a recurring deposit account?

Only those with an active savings account can open a recurring deposit account. Additionally, the persons who can open an RD account can:

  • Be above the age of 18 years

  • Be a minor with a legal guardian

Even a company or government organisation can open an RD.

What documents do you need to open an RD investment plan?

  •   Identity proof (Aadhar card/ PAN card)

  • Residence proof (Aadhar card/ PAN card/ Driving license)

  • Application form

  • Passport-sized photos

You might also have to go through a Know Your Customer (KYC) process through a video call with the bank.

Can I make premature withdrawals in a recurring deposit account?

Yes, you can make premature withdrawals in a recurring deposit account, but you will have to pay the penalty levied by the bank.

Disclaimers

 
  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

    • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry.
    • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
    • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
    • Past performance is not indicative of future performance.
    • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
    • Please make your own independent decision after consulting your financial or other professional advisor.