I am planning to open RD account. Can you tell me how recurring deposit works generally?
For someone who is just starting out on their investment or savings journey can actually use this amazing savings scheme. I started off with my savings with recurring deposits 10 years back.
In a recurring deposit, you regularly deposit a certain amount every month (or as per your chosen timeline) for a specified duration. You earn interest on these deposits and get the principal + interest back on maturity.
Unlike fixed deposits, recurring deposits give you flexibility to deposit money regularly and earn on it.
It is a safe investment avenue with better returns than a savings account.
In case you decide to withdraw all the amount prematurely, you might receive a lower interest rate than the agreed upon one or might have to pay some penalty.
To give you an example, this is how your RD looks like:
You decide to put Rs. 1000 every month for 12 months in the bank at the interest rate of 5%. Assuming you don’t withdraw your amount prematurely, this is how much you’ll earn:
- Principal amount = 1000x12 = Rs. 12000
- Interest earned = Rs. 329
- Total returns = Rs. 12329
Note that the interest is compounded every month.