Recurring Deposits are a special kind of Term Deposits offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits. It is similar to making FDs of a certain amount in monthly installments, for example Rs 1000 every month. This deposit matures on a specific date in the future along with all the deposits made every month. Thus, Recurring Deposit schemes allow customers with an opportunity to build up their savings through regular monthly deposits of fixed sum over a fixed period of time.
Recurring deposit is the most popular form of monthly investment and is suitable for all types of investors. Also known as Cumulative Deposits or RD, this encourages regular savings, wherein investors can invest a fixed amount every month for a fixed period.
Many investors prefer RDs as the investment amount is very low. Unlike equity mutual funds, RDs carry very low risk, with the only threat being the shutting down of the bank. The returns offered by RDs are more or less in line with the interest rates of fixed deposits. The interest rate applicable for your RD will be the initial interest rate running for the desired tenure, when you open the deposit.