Under a Recurring Deposit account (RD account), a specific amount is
invested in bank on daily basis for a fixed rate of return. The deposit has a fixed
tenure, at the end of which the principal sum as well as the interest earned
during that period is returned to the investor. Recurring Bank Account provides
the element of compulsion to save at high rates of interest applicable to Term
Deposits along with liquidity to access those savings any time. Since a recurring
deposit offers a fixed rate of return, it does not provide protection against
inflation.
There is great flexibility in period of deposit with maturity ranging from 12
months to 24 months. One can start a Recurring Deposit Account with a daily
instalment of Rs. 100/- only. There is no upper limit on investing. The rate of
interest varies between 6% and 6.50% percent depending on the maturity
period. Loan/overdraft facility is also available against Recurring Bank Deposits.
In case of Recurring Deposit being closed before completing the original term of
the deposit, interest will be paid at the rate applicable on the date of deposit, for
the period for which the deposit has remained with the Bank. Premature
withdrawal is also permissible but penalty is levied. TDS is not applicable on
Recurring Deposits.