Recurring Deposit (RD) is a type of term deposit that requires people to deposit a pre-determined amount of money in their RD accounts to earn interest at the rate applicable to FDs. It enables people to develop a habit of saving money every month in addition to earning interest on their savings. An RD is a perfectly safe investment since the returns are guaranteed.
Even though both RD and FD are term deposit schemes, they are quite different from each other. Customers need to deposit a monthly instalment for a pre-determined amount of time under a Recurring Deposit scheme whereas they have to deposit a fixed amount for a specified period of time for an FD. Most banks offer same interest rates on both RDs and FDs.
An RD matures on a specific date in the future depending on the timeline set by the depositor at the time of opening the Recurring Deposit account. The minimum and maximum time periods for a recurring deposit are 6 months and 10 years respectively.
The interest is compounded quarterly for recurring deposits. The maturity value is indicated to the customer when the customer opened the RD account assuming that the customer will pay the monthly deposits regularly. If a customer does not pay the monthly instalment, a penalty is charged based on the number of instalments missed.