New Delhi, October 7: Apart from modern investment tools like mutual funds, stocks, SIPs, Recurring Deposits (RDs), too are good options for an investment scheme with satisfactory returns.

But what exactly is an RD?

It is basically a scheme where an investor deposits a set amount of money each month for a particular period of time (1-5 years generally). Usually, the interest is calculated on a quarterly compounding basis. Also, at the end of tenure, the premium amount is returned along with the interest. Still not convinced? Let’s look at the advantages that an RD has for the investors.

Useful for short- term goals

Given its risk-free nature and guaranteed returns, investors prefer the option for short-term goals such as marriage expenses, higher studies, foreign trips, the latest gadget and so on.

Interest rates

RD interest rates differ as per the tenure and deposit amount. In most cases, the rates are similar to that of a Fixed Deposit. Currently it ranges between 5.75-8.05 per cent. Also, banks give a higher interest rate for senior citizens.

Ease of investment

In this scheme of investment, an investor needs to deposit a fixed amount every month, helping in a savings discipline. Adding to this, RD rates come with guaranteed returns and a locked-in rate of interest. This helps the investor to stay protected from interest rate swings.

Flexible recurring deposits

There are a few banks that offer a flexible RD. This means that the bank will not penalise the investor in case of non-submission of the stated amount during a particular month. Adding to this, an investor can withdraw the money anytime they require.

Loan options

Banks also accepts RDs as collaterals in order to avail a loan. An investor can take a loan of 80 to 90 per cent of the value of the deposit.

Hence, those looking to save up for short-term goals, RDs are the best options to opt for. Also, the scheme helps a person to get into the habit of saving, which can prove to be extremely beneficial in the long- term.