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Recurring deposits: A good wealth creation tool

This article decodes the utility of a recurring deposit in creating wealth for your future.

Rising inflation, high living costs, increasing demands on your income…it is little wonder that you are unable to save money on a consistent basis. Your income sometimes falls short of several goals quite often, so you decide to make investments that will augment your money and create wealth.

However, choosing the right investment option is key. If you do not wish to set aside a lump sum amount of money upfront, but you want guaranteed returns on your investment with a fixed rate of interest throughout the vesting period, then your best bet is a recurring deposit account.

Consider the reasons why an RD is a good investment option:

* It is simpler than an FD, for the same pay-off. The fixed deposit and recurring deposit account provide the same benefits. The rate of interest is the same on both, across most leading banks. But the major point of difference is that in an FD, you invest a lump sum amount upfront. In an RD, you pay smaller sums of money every month towards a larger whole. Thus, the recurring deposit is more affordable and anyone can start it.

* It is simple to open the recurring deposit account. If you have an active savings account then you can open a recurring deposit account with the same bank. It doesn’t matter whether you are young or old, salaried or a homemaker. The bank ascertains that your RD account will have the required balance to pay the monthly instalment, and assists you with the account opening. Ask your bank how to open the recurring deposit account: you can have an online recurring deposit account opening process with a leading bank.

* You can time the deposit maturity to coincide with future goals. The online recurring deposit is normally recommended for short term goals. You have the freedom to choose the deposit tenure, so you can choose a maturity term that coincides with a future goal. You can create a series of RDs as well, with varying maturity tenures, to meet different goals.

* The RD is a predictable investment option. Since the interest rate on the recurring deposit account remains constant throughout its term, you can predict the exact appreciation on it beforehand. Use an RD calculator to find the projected appreciation on the investment vis-à-vis the monthly investment, term and interest rate. Whether market rates fluctuate or not, the RD interest rates remain the same.

* It encourages the savings habit without extra effort on your part. You are aware of the benefits of saving money regularly, but it is not always possible to set savings aside every month. This difficulty is easily solved by starting the online recurring deposit. The monthly instalment towards the RD is auto debited from your account every month, so you don’t have to set it aside on your own. Thus, the RD encourages the savings habit without extra intervention on your part.

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