RD Interest Rates: Recurring Deposits, also called RDs, are a simple way to save a fixed amount of money every month. They can be useful for people who don’t want to take the risks that come with market-linked investments.
The basic idea is quite easy. You choose how much you want to save each month and select a period for the RD. The bank then pays interest on the money according to the rate offered for that deposit. At the end of the tenure, you receive the money you deposited along with the interest earned.
Unlike shares or mutual funds, an RD doesn’t depend on daily market movements. This makes it easier for savers to know that they’re putting away a fixed amount regularly while earning a predetermined rate of interest. The exact rate and rules can differ from one bank to another.
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How Does an RD Work?
Opening an RD means making regular monthly payments instead of putting one large amount into the account at the start. For example, someone can decide to save ₹5,000 every month for two years. Each monthly payment becomes part of the RD and earns interest under the bank’s rules.
The tenure can vary depending on the bank. SBI, for example, offers RDs from 12 months up to 10 years. Its regular RD starts at ₹100 per month, with further deposits allowed in multiples of ₹10.
Banks also decide their own interest rates based on the deposit period and other rules. Some banks offer a slightly higher rate to senior citizens. These rates can also be changed by banks, so customers should check the applicable rate when opening a new RD.
Things To Check Before Opening an RD
An RD may look simple, but there are a few rules that savers should know. Missing a monthly payment can lead to a penalty. SBI says a penalty is charged when an instalment is paid late. It also says the account can be closed early if six consecutive instalments aren’t received.
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Closing an RD before its maturity can also affect the interest received. Banks may calculate interest for the period the money stayed with them and then apply a premature closure penalty according to their rules.
Tax is another point to keep in mind. Interest earned on bank deposits can form part of taxable income. TDS rules can also apply when the applicable interest threshold is crossed. The Income Tax Department says interest from deposits is included when working out a person’s tax liability.
