How does a Recurring Deposit Work?

A Recurring Deposit is a special kind of term-deposit offered by banks in India, which help people with salaried incomes to deposit a fixed amount each month and earn an interest which is equivalent to the interest on Fixed Deposits or FDs.

Recurring Deposits are similar to FDs, where you can invest in monthly instalments, for example, Rs. 2000 every month. This deposit matures on a particular date in the future, along with all the deposits made each month. Thus, the Recurring Deposit schemes allow customers with an opportunity to build up their savings through regular monthly deposits of the fixed sum over a fixed period of time. The minimum period of an RD is 6 months, and the maximum is 10 years.

The Recurring Deposit Account can be funded by instructions, which the customer gives to the bank, wherein, a certain sum of money from his Savings/ Current Account is withdrawn and credited to the Recurring Deposit account.

When the RD Account is opened, the maturity value is indicated to the account holder, assuming that the monthly instalments will regularly be paid on due dates. If any instalment is overdue, the interest due in the account will be reduced and will not be enough to reach the maturity value. Therefore, the difference in interest will be deducted from the maturity value as a penalty, the rate ofwhich, will be fixed upfront.  You should be aware that the RD amount is subject to TDS and the maturity would vary if TDS gets deducted.

Taxation of Recurring Deposit

Tax Deducted at Source (TDS) is applicable on Recurring Deposits. If interest earned on FD AND RD exceeds Rs. 10,000 in a FY per Customer ID, TDS at the rate of 10% would be deducted by the bank. Income tax is to be paid on the interest earned from a Recurring Deposit at the rate of the tax slab of the RD holder.

Want to know more about the benefits of a Recurring Deposit? Click here!

Looking to open your Recurring Deposit? Click here to get started!

Book Recurring Deposits easily with HDFC Bank Savings Account. New customers can book a Recurring Deposit by opening a new Savings Account , existing HDFC Bank customers can book their Recurring Deposit by clicking here.

* 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.