RD Interest Rates 2023

Let us learn about the Recurring Deposit (RD) in greater detail. 

What is RD – Recurring Deposit?

RDs are a popular and reliable savings instrument offered by banks and financial institutions, allowing investors to systematically save a fixed amount at regular intervals for a specified period. It is an excellent choice for those looking for a disciplined approach to savings, providing attractive returns while minimizing risk.

It is a popular savings option for individuals who want to accumulate a certain amount of money over time by making regular contributions.

Eligibility Criteria

The eligibility criteria for opening an RD in a bank or Post Office is identical to other term deposits. 

The following are eligible to open the account: 

• Individual savings account holder

• Minors above 10 years of age

• Minor below or equal to 10 years of age under natural or legal guardianship

• A corporate, company, proprietorship, or commercial organization

• A government organization

Features of RD Account

You earn a fixed interest in the RD account applied at a fixed frequency to mature at the end of the selected tenor’s end. Thus, RD interest is compounded quarterly in most banks. Your maturity value is paid as the account terminates on maturity. 

Let us check out the critical features.

• The scheme teaches savings habits to the public.

• You can open an RD account for a minimum of Rs.100 to benefit small and marginal investors. 

• The RD tenor is from a minimum of six months to a maximum of ten years.

• The RD interest rates are the same as fixed deposits, higher than any other savings scheme.

• You can close your RD account prematurely without any penalty being levied.

• You can avail of a loan against the RD account as collateral for up to 75% of the accumulated balance. However, this may vary across banks.

• You can pay the monthly instalment in cash, transfer, or through a registered one-time standing instruction to transfer the monthly deposit from your savings or current account. 

RD Interest Rates in Banks

The RD interest rates are similar in most banks. However, you must check out with your bank for the specifics. 

RD Interest Rates Calculation

RD interest rates are calculated considering several factors in RD calculator. The typical compounding frequency in banks is quarterly. 

Maturity Value

M = R [ (1+i) n – 1 ] / 1 – (1–i) -⅓

• The variables used in the above formula are:
  M = Maturity value
  R = Monthly Installment
  n = Number of quarters
  I = Interest Rate 

RD Interest Rates for Premature Withdrawal

• Interest rates for premature withdrawal from an RD account may vary depending on the bank or financial institution's policy and the tenure for which the RD has been held.

• Banks typically have a predetermined penalty or reduction in interest rates for premature withdrawals, which can range from 0.5% to 1% lower than the regular RD interest rate.

• For example, if the regular RD interest rate is 7% per annum, the interest rate for premature withdrawal may be reduced to 6% or 6.5% per annum.

• This reduction in interest rate results in a lower interest earned on the RD amount for premature withdrawals.

• The exact penalty or reduction in interest rate for premature withdrawal may differ from bank to bank, and it's important to check with the specific bank or financial institution's policy before making any premature withdrawals from an RD account.

Types of RD Interest Rates

In India, several types of Recurring Deposit (RD) interest rates are offered by banks and financial institutions. These include:

• Special Recurring Deposit Schemes: Some banks and financial institutions offer special RD schemes with unique features and benefits. These may include higher interest rates, flexible tenures, or additional benefits such as free insurance coverage or loan facilities.

• NRE/NRO Recurring Deposit Schemes: Non-Resident External (NRE) and Non-Resident Ordinary (NRO) RD schemes are designed for Indians residing abroad or Indians with NRI status. These RD schemes allow NRIs to deposit their earnings in foreign currency or Indian rupees, respectively, and earn interest on their deposits.

• RD Schemes for Senior Citizens: Many banks offer RD schemes specifically designed for senior citizens, typically aged 60 years and above. These schemes often offer higher interest rates compared to regular RD schemes, providing additional benefits for senior citizens.

• RD Schemes for Minors: Some banks offer RD schemes for minors, which can be opened by parents or guardians on behalf of their children. These RD schemes typically have lower minimum deposit requirements and may offer special features such as flexible tenures or preferential interest rates.

• Regular RD Savings Scheme: This is the most common type of RD scheme offered by banks and financial institutions in India. It allows individuals to deposit a fixed amount of money at regular intervals, usually monthly, for a predetermined period, and earn interest on their deposits.

Tax Exemption of RD 

• Recurring deposit programs and other personal tax-saving and investment tools are subject to taxation.

• If the total interest earned from a recurring deposit exceeds Rs. 10,000 in a single fiscal year, a TDS (Tax Deducted at Source) of 10% is deducted.

Partial Withdrawal of RD

Partial withdrawal is not permitted in the case of a Recurring Deposit (RD), although some banks may offer a loan or overdraft facility by using the RD deposit as collateral. 

Post office RD accounts allow premature withdrawal after one year wherein the withdrawn amount is treated as a loan.

In Conclusion

RD account is a term deposit popular among small investors due to its structure where you invest in monthly installments, unlike lump sum investment. You can start from an amount as low as Rs.100 to warn RD interest rates applied to term deposits and higher than a regular savings account. Moreover, you enjoy all the fixed deposit benefits other than renewal as your RD account terminates on maturity.

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