Recurring Deposits: A Safe Savings Avenue with Fixed Monthly Investments
Quick Look
- Recurring Deposits (RDs) offer a secure way to build savings through fixed monthly investments in banks or post offices.
- Post offices provide a 6.7% interest rate for a five-year tenure, while banks offer competitive rates.
- Maturity amounts vary based on investment and tenure, with RD returns being taxable.
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Why It Matters
Recurring Deposits (RDs) are a savings scheme allowing fixed monthly investments in a fixed-income instrument, available at banks and post offices. They are considered a safe way to build savings without market risks.
Recurring deposit (RD) is a popular small savings scheme for investors seeking monthly investment in a fixed income instrument. They can open an RD account in a post office or a bank at a fixed interest rate. on the deposited amount. The interest paid on maturity is compounded quarterly.
For many investors, an RD is also one of the easiest ways to build a sizable corpus without taking market risks. An RD account has a maturity period of five years in a post office. However, banks offer RDs of up to 10-year tenure.
Before opening an RD account in a post office or a bank, an investor should check factors such as the minimum investment per month, premature withdrawal charges, interest rate, tenure, etc.
Several banks offer RD interest rates in the range of 6% to 7% for five-year tenures. The maturity amount can vary depending on the monthly investment amount. On the other hand, the post office offers a 6.7% interest rate on its RD.
5-year RD interest rates of leading banks and post office
Here’s the list of 5-year RD interest rates offered by State Bank of India (SBI), Punjab National Bank (PNB), HDFC Bank, ICICI Bank, Axis Bank and post Office. The interest rates have been taken from their respective official websites.
Bank Interest rate Investment amount Interest rate Total value HDFC Bank 6.40% 15,00,000 2,70,102 17,70,102 ICICI Bank 6.50% 15,00,000 2,74,771 17,74,771 Axis Bank 6.45% 15,00,000 2,72,434 17,72,434 PNB 6.35% 15,00,000 2,67,781 17,67,781 SBI 6.30% 15,00,000 2,65,457 17,65,457 India Post 6.70% 15,00,000 2,84,148 17,84,148
Maturity amounts you can get if you invest Rs 25,000 monthly for five years in bank and post office RDs. Our calculations illustrate approximate maturity amounts investors may get on maturity if they invest Rs 25,000 monthly in a 5-year RD offered by post office, SBI, NB, HDFC Bank, ICICI Bank and Axis Bank.
RD taxation
However, investors should remember that RD returns are taxable according to their income tax slab.
How is the interest on a Recurring Deposit calculated?
As per HDFC Bank website, “The interest on your Recurring Deposit is calculated from the date of each instalment paid and compounded quarterly, ensuring accurate returns. You can also try the calculator above to understand the payout of RD Interest better.”
Open Questions
- Specific bank RD rates beyond 5-year tenure?
- Details on premature withdrawal charges?
- Impact of income tax slab on net returns?
