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RD Interest rates are similar to FD rates. However RD can be done for periods like 3 months, 6 months, 1 year and so on. RD interest rates depend on the bank, RD period and your senior citizen status. Senior citizens earn a higher rate of interest when compared to regular citizens. Your RD interest rates also depend on the type of bank account you have. A regular savings account will typically earn a higher rate of interest than an NRE/NRO account. The existing RD interest rates range between 4.5% and 7.90% per annum.
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Recurring Deposit is a very popular investment scheme amongst the risk averse Indians mainly because of the good returns and savings benefits that it offers. In a Recurring Deposit scheme, you will have to deposit a fixed amount of money every month for a predefined period of time and the amount will fetch you interest. Similar to FDs, 10% TDS will be deducted on the interest that you earn on your RD. The actual income tax on RD interest is calculated at your marginal income tax slab rate. E.g. – If you have earned ₹4,000 in a financial year from a 1 lakh RD and your marginal tax slab is 20%, then income tax on RD gains will be 20% of ₹4,000 = ₹800. Please note that income tax is applicable on RDs on an accrual basis every financial year, irrespective of whether you withdraw it or not. Tax on RD and FD is different from mutual funds where tax is applicable only when you sell your mutual funds, not every year.
Along with Fixed Deposits, Recurring Deposits are among the most popular investment options in India. FD is a one-time investment at a fixed interest rate for a fixed tenure. E.g- You do an FD of ₹1 lakh in HDFC Bank at an interest rate of 6.00% p.a. After 1 year, HDFC pays back ₹1,06,000 to you (assuming no TDS deduction by bank). In RD, you do a monthly investment of ₹10,000 at an interest rate of 6.00% for 1 year. At the end of 1 year, HDFC Bank pays ₹1,23,952 to you (assuming no TDS deduction by bank).