What are some common myths surrounding RD?

Recurring Deposits are a popular investment strategy to increase your savings. You will earn a determined interest rate on the funds you deposit. On the other hand, several common myths about RDs can lead to missed opportunities. Here are some myths to know more about RDs:

Low returns

It is a common myth that RDs offer minimal returns and are not a good investment option. Although RDs offer lower returns than riskier investments like stocks or mutual funds, they provide a guaranteed interest rate. RDs are a low-risk way to grow your savings, and the returns are relatively stable compared to other options.

Not suitable for risk-takers

It is not true that RDs are only suitable for those who want to avoid risks. RDs are low-risk, but they are useful for disciplined savers who want to achieve specific financial goals. You get safety with predictable RD interest rates. They can help you build a more diverse and balanced investment portfolio.

Less flexibility

Another wrong notion is that you can only modify the amount or tenure once you start an Recurring Deposit. However, the truth is that many banks allow you to adjust the deposit amount or even open additional RDs with different terms. However, changes to the existing RD may be limited, so checking with your bank is essential.

Interest is not taxable

You might have a misconception that Interest earned from RDs is tax-free. The Interest earned from RDs is taxable under the Income Tax Act. It’s essential to account for this in your tax planning. Some banks may provide a Tax Deducted at Source certificate, but you should still report it in your tax returns.

Loose entire interest after withdrawal

Early withdrawal of a Recurring Deposit will not cause you to lose all earned Interest. While early withdrawal results in a penalty and reduced Interest, you do not lose all your Interest. The interest rate may be adjusted according to the revised tenure. You can still use your RD money even after early withdrawal.

Unfit for long-term goals

It is believed that RDs are only good for short-term savings goals. RDs can be helpful for both short-term and medium-term financial goals. The tenure lasts six months to 10 years, allowing flexibility based on your needs. You can choose any tenure and plan your finances accordingly.

High funds

You do not require a high minimum deposit amount to open a RD. Most banks offer RDs with low minimum deposit amounts, making them accessible to everyone. Recurring Deposits are most suitable for salaried employees who wish to set aside a fixed amount monthly.

Conclusion

RDs are helpful for disciplined savings and investment goals. It does not matter if you are saving for short-term or long-term goals. RDs offer a secure way to build your funds. Believing in these myths might lead you to make bad choices. Hence, clearing up these myths can help you make more informed decisions about whether RDs suit you.