What is Recurring Deposit?
A recurring deposit refers to investing a fixed amount of sum at regular intervals, which will be converted into a bigger sum later on. The investor earns interest on the deposited amount and can withdraw the same after maturity. This is similar to a Fixed Deposit (FD) where you save a specific sum of money for a fixed time-period.
As per Indian banking system, individuals are allowed to invest a minimum of Rs. 500 in a recurring deposit. They can increase the sum in multiples of Rs. 500 with no upper limit. The minimum tenure starts from 6 months and goes up to a maximum of 10 years. The investors are told an estimated maturity value according to the amount of investment and assuming that the payments would be received on time.
To fund a recurring deposit, a customer can either make payments personally or opt for the ‘standing instructions’ in which banks are directed to debit the monthly investment amount from the savings/current account of the customer and credit the RD account.
Recurring deposits are a good way to save a considerable sum of money for future needs. The whole purpose of RD is to encourage the saving habits in the lower-middle class and lower class section of the Indian society that usually do not have high income sources and cannot invest in FDs and other one-time deposit schemes. RD helps them to save small amounts of money every month and build a decent capital for covering future needs and even get interest on it.