7 Recurring Deposit Benefits You Should Know

We all have financial goals that we want to achieve, whether it's buying a dream home, funding our child's education, or planning for retirement. To make these aspirations a reality, it's essential to have a disciplined saving habit and invest early. One such investment option is a Recurring Deposit (RD). 

In this blog post, we will explore the benefits of recurring deposit and how they can help you build a corpus for the future. 

The Benefits of Recurring Deposits

1. Higher Interest Rates

   Recurring deposits offer higher interest rates compared to Savings Account. Generally, RD interest rates are at par with Fixed Deposit rates. This allows you to earn higher returns upon maturity.

    

2. Disciplined Way of Saving 

   Saving money regularly is an essential financial habit that can help you achieve your short-term and long-term goals. A recurring deposit acts as a catalyst in developing this habit. Let's understand this with an example: 

    

   Example: Ramesh, a salaried individual, decides to open an RD with a monthly investment of ₹5,000 for a tenure of 3 years. At the end of the tenure, he would have saved ₹1,80,000 (36 months x ₹5,000). This disciplined approach to saving can help him meet his future financial needs such as buying a car or going on a dream vacation. 

    

3. Flexibility in Investment Amount 

   One of the significant advantages is the flexibility it offers in terms of the investment amount. You can choose an amount that suits your monthly budget without compromising your day-to-day expenses. Let's look at an example: 

    

   Example: Priya wants to invest in an RD but doesn't want it to affect her monthly expenditure. She decides to invest ₹2,500 every month for a tenure of 2 years. At the end of the tenure, her savings would amount to ₹60,000 (24 months x ₹2,500). This shows how RDs allow you to save without putting a strain on your finances. 

    

4.  Fixed Interest Rates 

   RDs provide the advantage of fixed interest rates throughout the tenure, provided you don't close your account before the maturity date. This stability allows you to plan your finances better and set realistic goals based on the returns you will receive. Let's consider an example: 

    

   Example: Mohan opens an RD with an interest rate of 7% for a tenure of 5 years. He invests ₹10,000 every month. At the end of the tenure, his total savings would amount to ₹6,00,000. The interest earned on this amount would be ₹1,05,262.10 (approx.). This predictable growth helps him plan for his child's education or retirement. 

    

5. Easy to Open and Manage

   Thanks to Digital Banking, you can now open and operate an RD from your phone. For example, let's say you want to open an RD with Ujjivan. If you have an existing Savings Account with the bank, you can easily link it to RD. To open an RD, all you need to do is mention the investment tenure and amount. You have the option to add a nominee. Once done, you can manage your RD account from your phone or laptop.

    

6. Flexible Investment Tenure

   RD tenure ranges from 6 months to 10 years. You can wish to select the tenure of your choice based on your financial goals. For instance, if you want quick returns to buy a vehicle or any high-value house item, you can opt for a shorter tenure. But for short term FDs, it's generally advised to have higher RD investment amount. If your goal is to build substantial corpus for the long term, go for long-term RD investments. 

    

7. Compounded Interest 

   The power of compounding is well-known in the world of investments. RDs offer compounded interest, which means that interest is calculated not only on the principal amount but also on the interest earned in previous periods. Let's see an example to understand this better: 

    

    Example: Sunita invests ₹3,000 every month in an RD with an interest rate of 8% p.a. for a tenure of 4 years. At the end of the tenure, her savings would amount to ₹1,44,000 (48 months x ₹3,000). The interest earned on this amount would be approximately ₹28,232.96. This compounding effect helps her grow her savings faster.