The Recurring deposit account is an account in the bank (or a Post office in some countries) where an investor deposits a fixed amount of money every month for a fixed tenure (mostly ranging from one year to five years). This scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum after some years. The small monthly savings in the Recurring Deposit scheme enable the depositor to accumulate a handsome amount on maturity. Interest at term deposit rates is computable on quarterly compounded basis.
Features of Recurring Deposit Account
The main features of recurring deposit account are as follows:-
- The main objective of recurring deposit account is to develop regular savings habit among the public.
- In India, minimum amount that can be deposited is Rs.10 at regular intervals.
- The period of deposit is minimum six months and maximum ten years.
- The rate of interest is higher.
- No withdrawals are allowed. However, the bank may allow to close the account before the maturity period.
- The bank provides the loan facility. The loan can be given upto 75% of the amount standing to the credit of the account holder.
Advantage of Recurring Deposit Account
The advantages of recurring deposit account are as follows:-
- Recurring deposit encourages regular savings habit among the people.
- Recurring deposit account holder can get a loan facility.
- The bank can utilize such funds for lending to businessmen.
- The bank may also invest such funds in profitable areas.
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