Recurring Deposits - Features

What are the features of a recurring deposit in the UAE?

RD offers you a fixed rate of interest on the amount invested at a particular frequency until the pre-determined tenure or till the time of maturity. By the end of the tenure, the amount at the time of maturity (your invested amount) with the accumulated or remaining interest gets paid. Here are the primary features of the RD account.

1. The RD schemes aim at inculcating a regular habit to save amongst the public.
2. The minimum amount, which you can deposit may vary from one bank to another. This amount can be very minimal, making it easy for the majority of people to invest in it.
3. Usually, the interest rate offered on an RD is equal to what you get on a fixed deposit account and hence, is more than many other saving schemes.
4. The minimum deposit period begins generally at 6 months and the maximum deposit period is generally ten years.
5. The facilities of mid-term and pre-mature withdrawals are not available on this deposit. But the banks may let you close your account before the maturity time. At times, you will have to pay a penalty for premature withdrawal.
6. The RD could be funded periodically via standing instructions that are the instructions provided by the customers to the banks for crediting the RD account each month from their current or savings account.
7. A recurring deposit offers additional benefits for taking loans through the deposit, that is, by making use of the deposit in the form of collateral. About 80-90% out of the value of the deposit could be given as a loan to the customer.

What are the important factors you should check before you apply for an RD?

An RD is an option of investment in Dubai, which is offered by the banks. The amount of principal invested earns interest at a regular interval and the lump sum amount is given to the depositor during the maturity. Though an RD is a safe investment and the investment return in it is usually guaranteed, there are some of the factors that any person must consider before they invest their money in an RD account.

1. Flexible tenure of the RD account

The tenures of an RD are divided into 3 categories-

• Short-term period, which generally lasts from six months to one year.
• Medium-term period, which generally lasts more than one year to five years.
• Long-term period, which generally lasts for more than five years to ten years.

The way of earning interest on the invested capital in a recurring deposit is by investing for that tenure, which provides the highest rate of interest with the tenure being as short as it can get.

2. Rate of interest offered on a recurring deposit account

The rate of interest offered by the banks on various tenures may differ from one bank to another. This rate of interest on a recurring deposit usually ranges between 5.25% to 7.90% for a term of a year. Generally, the interest rate is based on tenure and the amount of monthly investment. For the deposits of the medium-term, the rates are usually the highest. In the case of long-term deposits, the rates are generally a little lower because the accountholder stands to earn a higher interest amount altogether.

3. The option of premature withdrawal from an RD account

All the banks, which provide you with the option of opening an RD account, also offer the facility of making a premature withdrawal from it. The interest amount payable gets calculated on the basis of the duration of the tenure that is completed. A penalty on premature withdrawal is charged by these banks. Hence, when while making an RD investment in Dubai, select such a bank, which will offer you a high interest rate and at the same time the levies a low amount of fee on for the facility of premature withdrawal.

Premature withdrawal of an RD Account

• In case the account holder withdraws his or her deposited amount before it matures, the interest rate received would be the one, which applies to the duration for which this deposit has been with the bank. A penalty amount will be charged by the bank for availing this facility of premature withdrawal.
• The rate of interest that the bank offers may differ according to the discretion of the bank.
• But some of the banks may deduct the rate of interest by 1-2% for the tenure in which the deposit was with the bank in this case.
• Generally, there is a minimum lock-in period in the case of an RD account, which is 3 months for most of the banks. In the case of a pre-mature withdrawal that is made before this period, the account holder will earn 0 interest and just the amount of principal, which was deposited would get refunded to him or her by the bank.
• Apart from the penalty on the interest, the depositor will not be eligible for the incentives provided by the bank on the RD account.

Partial withdrawal from an RD Account

• Partial withdrawal options are not allowed by most of the banks. Although most banks don’t allow this facility, some banks offer an alternative in terms of overdraft or loan facility that is made available by pledging the RD balance as collateral.
• Moreover, premature withdrawal can be made by paying a penalty amount for the duration for which the deposit has been with the bank.

Benefits of a recurring deposit

Here are some benefits of putting your hard-earned dirhams in an RD.

1. It is a simple financial product for making an investment in Dubai.
2. It offers guaranteed returns, hence, the risk is very low.
3. There is a flexible tenure and the minimum deposit amount is very low.
4. You have the facility of premature withdrawal.
5. You can also opt for a loan against a deposit.