Why should you consider a Recurring Deposit for future benefits?

For many people, a Recurring Deposit (RD) has not only helped create a disciplined saving habit but has also been an ideal way to build a corpus for the future. But before you decide to open an RD (if you don't have one already), it is essential to understand some basics regarding this type of account.

What is a Recurring Deposit?
 

As the word 'recurring' suggests, it is an instrument for making regular monthly investments of a fixed amount for a selected tenure. The bank adds interest on the accumulated funds, which acts as an income for you. RDs are considered one of the safest investments available. The target of a recurring deposit is to mobilise your savings to earn returns on your investment, enabling you to achieve the financial goals you have set. The interest rate on RDs is usually calculated on a quarterly compounded basis or as specified by the bank.

How does an RD Account work?
 

Unlike a regular fixed deposit, wherein you invest a lumpsum amount at one go for a predetermined tenure, a recurring deposit account lets you invest a specified amount each month until the end of the tenure. The monthly amount generally remains unaltered during the tenure. One of the benefits of such an investment is that you can invest a sum that doesn't hamper your monthly expenditure; instead, it can help increase your future funds.

Benefits of a Recurring Deposit
 

1. Attractive interest rate
 

The most beneficial factor of a recurring deposit is the attractive interest rate, making it more profitable than a regular savings account. For instance, if you open an RD account with IDFC FIRST Bank, you get attractive interest rates up to 6.75%. Interest earned is paid out at the time of maturity of the account. Visit the Recurring Deposit Interest page or calculate the interest to be earned here.

2. Penalty not included
 

There was a time when you needed to pay penalties if you missed a monthly payment due. However, with institutions like IDFC FIRST Bank, saving with an RD account has become more investor-friendly as you do not incur a penalty for missing an instalment. There may be penalty applicable on premature withdrawal of your RD. Click here to know more.

3. Start with a feasible amount
 

Anybody can build savings through an RD account as the minimum amount starts at around ₹500 and varies according to different banks or institutions. IDFC FIRST Bank makes this investment a far more viable option by setting the minimum amount at ₹100 (maximum investment per month is ₹1,25,000). So you can get started with the amount you are comfortable with and you don't have to compromise on your daily expenses.

4. Choose short tenures
 

Like the minimum sum, you can choose a short tenure depending on your financial capacity or needs. With IDFC FIRST Bank, you can choose to open a recurring deposit account for a period as short as 6 months, making it an ideal option for short-term investments.

5. Easy documentation
 

If you already have a savings account, you can open an RD account with the same bank and link it to your savings account with no additional documentation needed. This makes starting an RD a hassle-free process.

6. Recommended for short-term goals
 

If you are someone who has or sets lots of short-term goals, such as annual holidays or upgrading your phone/gadgets every few years, an RD can be an excellent option to save for these goals.

7. Save through instalments
 

Most people open FDs when they receive lumpsums, such as bonuses. However, this is not something that everyone enjoys. If your income and budget leave you with a smaller amount at the end of the month, you can put these extra funds to work by starting an RD account. This way, you can put away small amounts to eventually accumulate a large sum, and your money, which would otherwise lie idle in your bank account, can earn a higher interest rate.

Recurring deposits give you a risk-free fixed income, and with IDFC FIRST Bank offering attractive rates, it makes complete sense to open an RD account today to establish a more secure financial future.