RD is one of the best option for saving.
A recurring deposit (RD) is deposit offered by banks or post office which help people with regular incomes to deposit a fixed amount every month into their recurring deposit account and earn interest at the rate applicable to fixed deposits.
This deposit matures on a specific date in the future . The minimum period of a recurring deposit is six months and the maximum is ten years.
Long Term More savings
We advise to go for long term i.e 10 years as trend shows rate on deposits are on declining trend.
The recurring deposit can be funded by standing instructions which are the instructions by the customer to the bank to withdraw a certain sum of money from his savings/current account and credit to the recurring deposit account.
It means you can instruct bank to debit your SB account automatically for monthly installment of RD.
So you are not required to go bank monthly.
Where to open?
Suppose their is no regular credit in your account like salary then it is advisable to open RD in post office through Post Office Agent.
Agent will collect installment from your home . Please note that Agent commission will be borne by post office and you are not required to pay any commission or collection fee.
What if you miss or delayed an Installment
When the recurring deposit account is opened, the maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates.
If any installment is delayed, the interest payable in the account will be reduced and maturity value will be less and bank may charge penalty too.
Therefore, the difference in interest will be deducted from the maturity value as a penalty. Interest is compounded on quarterly basis in recurring deposits.
You can avail loans against recurring deposit up to 80 to 90% of the deposit value easily whenever required.
It is advisable that if loan is required for short term then it is good to take against RD . Long term loan should not be applied against RD.
Tax
TDS will be applicable equivalent to other fixed deposits . We advise to advise your banker to feed PAN in your account to reduce percentage of tax .
If your income is non taxable then you can submit Form 15G or 15 H and no tax will be deducted.
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