5 Benefits of Recurring Deposit That You Should Know
Imagine finding a rupee coin on the sidewalk. It might seem like nothing, just a small piece of metal lost in the hustle and bustle of everyday life. But what if this coin could be the start of something much bigger, like building a secure financial future?
That’s the core principle behind Recurring Deposits (RDs). They take the age-old saying “start small, dream big” and turn it into a practical strategy for building wealth. Instead of needing a large amount of money to invest, RDs let you use the power of regular savings, turning even small amounts into a significant corpus over time.
This blog will explore the benefits of opening a recurring deposit account. But first, let’s understand what they are and how they work.
What is a Recurring Deposit?
A recurring deposit is a financial instrument that allows you to invest a fixed amount of money regularly (typically every month) over a predetermined period.
Unlike fixed deposits (FDs) where you invest a lump sum upfront, RDs encourage consistent saving, making them ideal for individuals with limited financial resources. The invested amount accumulates interest over time, offering higher returns compared to regular savings accounts.
Due to their low entry point and guaranteed returns, RDs are considered one of the safest investment avenues.
How Does an RD Account Work?
Unlike FDs, RDs don’t require a large initial investment. You can start with a small, fixed amount that works well with your budget. This monthly contribution gets deposited into your RD account, and the bank compounds the interest earned on the total amount periodically (usually quarterly). This means you earn interest not just on your initial deposit, but also on the accumulated interest over time, increasing your return on investment.
Now that you understand what an RD account is and how it works, let’s discuss the advantages of opening one.
What are the Benefits of Recurring Deposits?
Here are the following benefits of recurring deposits:
- Start Small:
Setting aside a large lump sum can be a challenge for many. RD accounts offer the flexibility to start with a manageable amount, often as low as Rs. 500, depending on the bank. This makes it convenient for individuals with lower incomes and encourages them to cultivate a savings habit without straining their monthly budget for essentials like rent and groceries.
Some banks like DBS Bank further lower the bar and allow you to create an RD account with a minimum investment of Rs. 100, which makes it accessible to a wider range of savers.
- Flexible Tenure to Match Your Goals:
RDs come with flexible tenures (typically from a few months to several years), enabling you to choose the duration based on your financial goals and needs.
DBS Bank, for instance, offers RD Accounts with tenures ranging from 6 months to 10 years. This allows you to customise your investment to your unique needs. Choose a shorter tenure if you’re saving for a new phone or a small home renovation. Opt for a longer tenure to accumulate a larger sum for long-term goals like buying a house, building your child’s education fund, or saving for retirement.
- Earn Attractive Interest Rates:
Compared to regular savings accounts, RDs offer higher interest rates (usually between 2%-7%), leading to better returns on your investment. Interest rates can vary depending on factors like the chosen bank, deposit duration, and even the depositor’s age. For example, DBS Bank offers senior citizens 0.50% higher interest rates compared to the general population. This encourages them to save for their golden years. To get this benefit, seniors just need to show proof of age and identity.
Furthermore, RDs benefit from the power of compound interest. This means interest is calculated not only on the principal amount but also on the accumulated interest, increasing your earning potential over time.
- Save via Instalments:
Unlike FDs that require a lump sum investment, RDs allow you to save consistently through instalments. This is particularly beneficial for individuals with a fixed income or those who receive smaller amounts regularly. Instead of letting these smaller amounts sit idle, you can invest them in an RD and watch them grow steadily.
Additionally, some banks offer daily, monthly, and quarterly deposit options, allowing you to customise your savings schedule based on your income flow.
- Hassle-Free Account Opening:
Opening an RD account is a hassle-free process. You can usually do it online or at your chosen bank branch with minimal documentation. In most cases, you will need to provide your ID, address proof, and PAN card. The bank will also ask you about your desired deposit amount, tenure, and nomination details. Once you submit everything, the bank will set up your RD account and you can start making your deposits.
Take Away
RDs are the perfect example of how small, consistent steps can pave the way to a secure financial future. So, forget your “all or nothing” mindset and start building your wealth today with an RD. Contact a financial advisor for more information.
