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Business News/ Money / Calculators/  Three things to know about recurring deposit
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Three things to know about recurring deposit

The interest you earn from recurring deposit is taxable. It will be considered as income from other sources and added to your overall income

The interest rate on an FD and an RD is almost similar. Usually, both offer 0.50% higher interest rate to senior citizens. Photo: iStockPremium
The interest rate on an FD and an RD is almost similar. Usually, both offer 0.50% higher interest rate to senior citizens. Photo: iStock

Returns on investment

Recurring deposit (RD), like fixed deposit (FD), offers interest rates based on tenure and your age. If you are a senior citizen, the interest rate would be higher. The interest rate on an FD and an RD is almost similar. Usually, both offer 0.50% higher interest rate to senior citizens. For instance, Kotak Mahindra Bank Ltd’s 1-year recurring deposit will give you 7% interest rate. So if you put Rs1,000 a month for 12 months, your Rs12,000 will grow to Rs12,465—a gain of Rs465. For the same period, a senior citizen will earn at the rate of 7.50% per annum and get a gain of Rs499.

Cost of stopping mid-way

Remember that if you decide to discontinue the product prematurely, some banks will charge you a penalty. The bank will pay interest at a rate that exists at the time of withdrawal, if it is lower. You will also have to pay additional penal interest at a rate of around 0.5% on your RD. For instance, if your RD gave you 7% interest, in case of premature withdrawal, you may get returns at the rate of 6.50% instead. There are other charges as well. For instance, State Bank of India charges a penalty on delayed payment—Rs1.50 for every Rs100 a month.

Your tax outgo

The interest you earn from RD is taxable. It will be considered as income from other sources and added to your overall income. Based on your slab rate, the tax on the RD returns will be calculated. For instance, if you are in the highest tax bracket (30%), it will be taxed at this rate. The tax deducted at source (TDS) will be deducted if the interest income exceeds Rs10,000. If you don’t provide permanent account number (PAN), TDS will be deducted at 20%. Remember that RD is just one of the options available for investing. Continue tracking this space for more options.

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Published: 14 May 2018, 04:32 PM IST
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