Recurring deposit: does it work for you?
Recurring deposit (RD) allows you to deposit money on a recurring basis.There are a number of ways to analyse it if you ever need to use it.
Recurring deposit (RD) allows you to deposit money on a recurring basis, usually monthly. Here’s how you should analyse if you need it
1. For discipline: If you are in your first job and feel you don’t have the discipline to save every month, RD can help you build that habit. It works for those people who are not yet ready to try Systematic Investment Plan (SIP) or don’t have access to other financial products. It also works for those in the lowest tax bracket.
2. Rates and charges: RD, like fixed deposit, offers interest rate based on tenure and your age. If you’re a senior citizen, the interest rate would be higher. The interest rate ranges from 6-8% per annum. In case you don’t make deposit, you will have to pay a penalty.
3.Time to graduate: Since it works for the lowest tax bracket, you will have to graduate from the product. You can consider mutual fund with SIP where you invest monthly in a mutual fund product. Recurring deposits doesn’t make sense for those in the highest tax bracket.