RD in a bank stands for Recurring Deposit.
Recurring Deposits (RDs) are a savings instrument offered by banks and other financial institutions that allow individuals to deposit a fixed amount of money at regular intervals (usually monthly) over a fixed period. This helps build a corpus over time while earning interest on the deposits. It is a disciplined and relatively low-risk way to save.
Key Features of a Recurring Deposit:
- Fixed Installments: You deposit a pre-determined amount each month.
- Fixed Tenure: The deposit is for a specific duration (e.g., 1 year, 5 years).
- Interest Earning: The bank pays interest on the deposited amount, compounded periodically (usually quarterly).
- Premature Withdrawal: While typically discouraged, premature withdrawal is often possible, but might incur a penalty.
- Loan Facility: Banks may offer loans against the security of your RD.
Benefits of a Recurring Deposit:
- Disciplined Saving: Encourages regular saving habits.
- Affordable: Allows you to start saving with a small amount.
- Safe Investment: Considered a safe investment option.
- Higher Interest Rates (Potentially): Sometimes offers higher interest rates compared to regular savings accounts.
- Goal-Based Saving: Suitable for saving towards specific financial goals.
How a Recurring Deposit Works:
- Open an RD account: You can open an RD account at most banks.
- Choose the amount and tenure: Decide how much you want to deposit each month and for how long.
- Make regular deposits: Deposit the chosen amount regularly, usually monthly.
- Earn interest: The bank pays interest on your deposits.
- Maturity: At the end of the tenure, you receive the total deposited amount plus the accrued interest.
Example:
Suppose you open an RD account with a monthly deposit of ₹2,000 for 5 years (60 months) at an interest rate of 7% per annum. Over the tenure, you will deposit ₹120,000 (₹2,000 x 60). At maturity, you will receive ₹120,000 plus the interest earned, resulting in a significantly higher amount. The actual maturity amount depends on the compounding frequency and the bank's specific terms.
