"It's not your salary that makes you rich, it's your spending habits- Charles A. Jaff" So True!

We have this love for the month beginning and out heart breaks right around the end. I am sure all of us can relate to this feeling. So, are we ever going to get over this or always whine about being broke! Well, it all depends on us, mainly our savings habit. Saving what’s left after all spending is now an old school thought, with the introduction of new scheme such as recurring deposit that is available in all the banks. Saving is now simpler and structured. It gives you the freedom to save.

What is Recurring Deposit?

Recurring Deposit (RD) is an investment scheme which permits those who are willing to make regular deposits and earn higher returns on their investment. Account holders can choose a particular amount to invest on a monthly basis for a selected term that best suits their need.

 Recurring VS savings account

Higher return: You get higher returns in RD account. The interest rate tends to be more in line with fixed deposits of similar terms which is always higher than interest on savings account.

Guaranteed return: Interest rate get’s fixed for the entire selected term of the RD scheme while interest on savings account vary and could be subject to change based on change in market dynamics. Hence, you can lock the rate on your savings through RD and plan better knowing the return.

Savings discipline: You can always access your savings account hence there is possibility of dipping into your savings for impulse purchases and expenses. The funds in RD are locked away so access to your funds is limited or at maturity meaning your savings are safe from your urge to spend.

Multiple accounts: You can open more than one RD in the same bank. You can open different accounts for different purposes. 

Recurring Vs fixed deposit (FD)

Term: Most banks offer RD scheme with varied terms starting from six months. However, these schemes are popular with customers opting for longer terms such as three to five years.  Some banks even offer ten-year terms so there is great flexibility.

Amount: You can start RD with a very nominal monthly amount even with Rs. 100. While most banks have six digit minimum balance (NPR 100K) requirement for opening fixed deposit accounts. This is another flexibility factor when compared to FD.

Customization and automation: Some banks make the monthly deposit process automated, where the system automatically transfers the selected amount each month to your recurring deposit account. Hence, you don’t have to worry about going to branch or keeping reminders to deposit funds. Also some banks allow options to choose the date the funds to get deposited. This will help you plan it around your salary or on your monthly cash flow.

Being curious is good, ask questions to your bank before opening a recurring deposit:

Will the bank give you option to take out a loan against the balance available in your Recurring Deposit? Can you prematurely close your recurring deposit account? Banks don’t let you prematurely close this type of accounts easily. And like your fixed deposit they allow premature withdrawals but there might be charges or penalty.

Similarly, you need to be aware of the consequences of missing your committed monthly investment amount. Banks might allow you grace period or other option to make the deposits. This could attract charges or some banks could allow this flexibility too.        

Summing it up all together

Recurring deposit can work best for many as it is a forced saving option where you automatically save monthly before you start spending your hard earned money. Further, this scheme promotes a savings habit which is a fundamental step towards taking control of your personal finances and reaching your financial goals.