Lock into Recurring Deposits as interest rates may fall

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Lock into RDs as interest rates may fall
Recurring Deposits are deposits offered by banks for the purpose of ensuring regular monthly savings. Recurring deposits are popular among salaried class as they have regular income and can save a stipulated amount every month.

One can look into this scheme in a falling interest rate regime as you can lock your money when the interest rates are high.

The tenor of the recurring deposit can range between 6 months and 10 years.

Banks offering interest rates


1 year  3 year  5 year 
 Axis Bank  8.50%  9.00%  8.50%
 HDFC  7.75%  8.75%  8.75%
 ICICI  7.50%  8.75%  8.50%
 SBI  8.50%  8.50%  8.50%
 Yes Bank  9.00%  8.75%  8.75%
 Kotak Mahindra Bank  9.00%  8.75%  8.50%

Taxation:

Interest earned on RD are not tax free, so it is best for people who fall in lower income tax bracket. However, banks don't deduct tax at source on Rds, but the interest earned is taxable as per one's tax bracket.

Benefits of RD

  • Save regularly with minimum amount 
  • RD are better option when the interest rates seem to fall 
  • One can avail loan or overdraft facility
  • TDS is not deducted. However, one has to pay tax on interest earned. 
  • The rate of interest is fixed, so one can be tension free when the interest rates are falling

Withdrawal:

Banks do not allow partial withdrawal in this case. However, if you withdraw penalty may be charged according to bank norms.

Interest rates:

Interest rates are compounded every quarter, however they only pay at maturity. Senior Citizens usually get advantage of 0.5% more depending on the bank.

Limitations:

  • You cannot alter/change the tenor or monthly contribution amount, once fixed.
  • In case you fail to contribute consequently, the RD account may be closed.

Who should go for it?

If you have just started your career and looking for monthly savings, if you fall in lower tax bracket.
People who are less averse to risk believe in safe returns can opt for this.

GoodReturns.in

Read more about: interest rates
Story first published: Thursday, December 13, 2012, 10:22 [IST]
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