A recurring deposit (RD) is a type of savings account offered by banks and post offices, primarily in India, that encourages regular saving and helps you earn interest on your deposits. Here’s a breakdown of its key features:

How it works:

• You commit to depositing a fixed amount of money every month for a predetermined period, which can range from 6 months to 10 years.
• Unlike a fixed deposit (FD) where you invest a lump sum upfront, RD allows for flexible, periodic deposits.
• You earn interest on the deposited amount, typically compounded quarterly. This means the interest earned is added to the principal amount, and future interest is calculated on the increased amount.

Benefits:

• Develops a savings habit: RD enforces regular saving, fostering financial discipline and helping you build a corpus over time.
• Flexibility: You can choose the deposit amount and tenure that suits your financial goals and budget.
• Earns interest: You receive interest on your deposits, helping your money grow compared to keeping it in a regular savings account.
• Relatively safe: RDs are considered a safe investment option as they are backed by the bank or post office.

Things to consider:

• Interest rates: RDs typically offer lower interest rates compared to FDs.
• Premature withdrawals: Early withdrawal may result in penalties and loss of some interest earned.
• Limited liquidity: Unlike savings accounts, RDs are not readily accessible until they mature.

Overall, RDs are a good option for individuals who:

• Want to inculcate a habit of regular saving.
• Have specific short- to medium-term financial goals.
• Seek a safe and reliable investment option with guaranteed returns.

If you’re considering opening an RD account, it’s important to compare interest rates offered by different banks and post offices to choose the one that best suits your needs.