Recurring Deposits

A Recurring Deposit(RD) is a type of term deposit account opened by a person/persons with a bank or a post office wherein the investor or investors deposit a fixed amount of money every month for a fixed tenure . This scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum at the end of the tenure. The interest on RDs normally offered by banks is one percent below Fixed  Deposit(FD) rates compounded quarterly.Often there is nothing extra by way of  interest offered for senior citizens.Otherwise the rules for operating a RD account are the same as that for a FD account.The PO offers a fixed 7.5% interest compounded quarterly for a 5 year term.

RDs are great for people to develop the savings habit.It is especially useful to teach kids to save especially the Post Office Recurring Deposit (PORD) which has a minimum deposit of 10 rupees per month.Often banks package RDs as schemes to become or to make your child a lakhpati,millionaire etc or as schemes to build the down-payment on a house or vehicle. 

RDs are also great ways to build a sinking fund.For more on this head please read the following post: https://wealthymatters.com/2011/04/22/economic-life-sinking-funds-amortization-and-rds/

Here is a link to a good RD calculator:https://www.corpbanknet.com/Recurr_deposit_Calc.html

In case you are put off RDs because it requires you to commit to depositing a fixed amount every month and your financial situation will not allow you to do so.There is a variation of the RD called the Variable Progressive Deposit where you have to just commit to depositing a very small base amount every month and you are allowed to deposit multiples of the base amount as per your wish.Many of them also offer you the flexibility of making only 10 deposits a year.They might even allow you to make late payments with a penalty.Thus RDs are a great way to get into the saving habit and start building capital if your finances are  unstable.In case it seems a hassle to visit the bank to deposit this tiny base amount,you could give your bank standing instructions to debit it from your savings account.

As the interest rates are now pretty high it is a good time to start RDs.In this way you will be able to lock in the higher rates even for your future savings.This is an alternative to laddering to ensure better rates if you don’t need the interest income to live on.