15 facts about Recurring Deposits you need to know!
Recurring Deposit schemes offered by banks are one of the most popular investment options chosen by many people. Salaried people, as well as people with less income, prefer RDs as their investment tool. According to this scheme, an individual has to invest a fixed amount of money every month for a pre-determined period of time and earn interest on their investment. The principal amount along with interest is returned after the maturity of the RD.
Here are some of the facts and advantages of Recurring Deposits that you need to know:
- The minimum investment amount to be deposited every month in an RD scheme is as low as Rs. 1000. This is a major attraction for people with low income and salaried people.
- As the investor has to invest a part of his income regularly, it is highly beneficial in inculcating the habit of saving.
- Payment to one’s RD account can be made directly from his Savings or Current Account.
- An RD Account can be linked to one’s Savings Account. Hence, it does not require any documentation work under these circumstances.
- Unlike Fixed Deposit schemes, where one has to invest a lump sum amount at one time, Recurring Deposit do not burden the investor in such a manner.
- Mutual Funds and Stocks are subject to market risks. However, in RD Schemes, the deposited amount is safe and secure and will be returned along with interest at the end of the fixed tenure.
- The rate of interest offered on a Recurring Deposit is as much as the interest offered for Fixed Deposits.
- The interest rate on RD is locked-in. So, one need not worry about a fluctuation in interest rates.
- Recurring Deposits are the best investment option, particularly for those planning to tackle short-term financial situations like funding money for dream vacation or wedding, higher education costs, etc.
- Under the Flexible Recurring Deposit scheme offered by some banks, the investor will not be penalised if he fails to deposit the amount in a particular month.
- Senior citizens are given a higher rate of interest. It is usually 0.5% more than the regular interest given to others.
- TDS (Tax Deducted at Source) is applicable on Recurring Deposits. It is deducted at 10% on the interest earned which exceeds Rs. 40,000( Rs.50000 for senior citizens). This rule has come into effect since April 2019. However, no TDS is deducted on an interest earned up to Rs. 40,000( Rs.50000 for senior citizens).. This is done to safeguard the interest of lower income investors.
- Is RD interest taxable?: Recurring Deposits attract no tax exemptions. Income tax has to be paid on the Interest amount received from Recurring Deposits. The tax has to be paid at the rate of the tax slab of the RD holder.
- Form 15G has to be submitted by the investors with no taxable income to avoid TDS on Recurring Deposits. Form 15G is applicable for people under the age limit of 60 years.
- Nowadays, almost all popular banks are offering online Recurring Deposit facility. With this online facility, one can deposit money in their RD account, close the RD account, view transactions and update necessary information. All this can be done from the comfort of one’s home, at their own convenient time without having to visit the bank at its working hours.
You can read more about tax and Recurring Deposit here.
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*Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.