In a recurring deposit a person deposits money on a monthly basis, and receives an amount on maturity after the tenure is over with interest added to it. In a fixed deposit a person has to keep a lumpsum amount in bank for a certain duration of time and the person is aware of the interest they will get on maturity of the FD. FD is the most common investment done by people looking for secured returns.
A lot of people plan to accumulate funds for investment but find it difficult to save enough. It makes sense for them to save on a monthly basis, and Recurring deposits (RD) account is the best option for such investors. An RD account can be opened with a bank or a Post Office. A person can choose a fixed amount to invest every month over a period of time.
It is usually difficult to invest lumpsum amount at a time. So, if a person plans to make some big investments or big ticket purchases it is advisable to open a RD and accumulate some amount. In RD a person gets a fixed interest too. For a bank RD account, the term of deposit may vary between 12 months and 120 months, but post office offers RDs for a tenure of five years. Usually, interest rates on Bank RD varies between 6.4% and 6.85 % for regular customers whereas post office RDs offer higher interest rate of 7.2% per annum, compounding quarterly.
For opening an account under the Post Office Recurring Deposit scheme, the minimum investment required is a minimum of Rs 100 per month, which can be any higher amount in the multiple of Rs 10. The Post Office RD account doesn’t come with an upper limit to the investment allowed in it. A person can invest up to any amount in this scheme.
There is a tenure of five years for Post Office RD and the date of maturity is five years from the date of opening the account. The RD account can be extended for another five years by giving application at the account office.
The Post Office RD account can be opened by paying cash or through cheque. According to the India Post website, deposits can be made up to the 15th of the next month if the account is opened before the 15th of the calendar month. Also, deposits can be made up to the last working day of the next month if it is opened after the 16th of a month. One can also make an online deposit through netbanking or mobile banking also.
After one year of the scheme a person can withdraw up to 50% of the balance. This can be repaid in one lump sum along with the interest at the prescribed rate, at any time during the duration of the account.
Investors who are looking for safe and assured returns on their investments, especially senior citizens mostly opt for bank fixed deposits. However, over the last couple of years all top banks, including State Bank of India have been consistently lowering interest rates on its FDs, as Reserve Bank of India reduced the repo rate. This move has compelled many individuals to consider other options such as Post Office Time Deposits, which is similar to bank FDs and sees a quarterly revision of rates.
Post offices offer term deposits which ranges from one year to five years. Like bank FDs, investors earn a guaranteed return through the tenure of the post office term deposit. For one-year time deposit to three years, it offers an interest rate of 5.5% and for five-year time deposit account, Post Office offers an interest rate of 6.7%. For a SBI FD, the tenures may vary from seven days to 10 years, depending upon the need of investment. SBI FD interest rates vary between 2.9% to 5.4% for general customers.