0
0

Recurring Deposit Account

Introduction

A Recurring Deposit (RD) Account is designed to promote disciplined and regular saving. It is especially popular among salaried individuals and small savers who prefer depositing a fixed amount every month. RD questions are frequently asked in exams through feature-based and comparison-oriented MCQs.

Pattern: Recurring Deposit Account

Pattern

A recurring deposit account allows customers to deposit a fixed amount every month for a fixed tenure and earn interest similar to fixed deposits.

Step-by-Step Example

Question

Which type of bank account is most suitable for a salaried person who wants to save a fixed amount every month for a specific period?

  • A. Savings Account
  • B. Current Account
  • C. Fixed Deposit Account
  • D. Recurring Deposit Account

Solution

  1. Step 1: Identify the saving pattern.

    The question mentions saving a fixed amount every month.

  2. Step 2: Identify the tenure condition.

    The savings are made for a specific fixed period.

  3. Step 3: Eliminate unsuitable options.

    Savings accounts do not mandate monthly deposits, and FD requires a lump-sum deposit.

  4. Final Answer:

    Recurring Deposit Account → Option D

  5. Quick Check:

    Monthly fixed deposit + fixed tenure = RD Account ✅

Quick Variations

1. RD tenure usually ranges from 6 months to 10 years.

2. Interest rates are generally similar to fixed deposit rates.

3. Missing an instalment may attract a penalty.

Trick to Always Use

  • Step 1 → Monthly fixed saving → Think RD
  • Step 2 → Fixed tenure + compound interest → Eliminate Savings Account

Summary

Summary

  • Recurring Deposit involves depositing a fixed amount every month.
  • The deposit continues for a fixed tenure chosen at the time of opening.
  • It encourages disciplined and regular saving habits.
  • Interest earned is comparable to fixed deposits.

Example to remember:
Monthly saving + Fixed time + FD-like interest = Recurring Deposit

Practice

(1/5)
1. Which bank account requires depositing a fixed sum at regular monthly intervals?
easy
A. Recurring Deposit Account
B. Savings Account
C. Fixed Deposit Account
D. Current Account

Solution

  1. Step 1: Identify the deposit frequency.

    The question highlights regular monthly deposits.

  2. Step 2: Match with the correct account type.

    Recurring Deposit accounts require fixed monthly instalments.

  3. Final Answer:

    Recurring Deposit Account → Option A

  4. Quick Check:

    Monthly fixed instalment = RD Account ✅
Hint: Monthly compulsory saving always indicates RD.
Common Mistakes: Choosing savings account without noticing the compulsory monthly deposit.
2. Which of the following accounts is most suitable for building savings gradually over time?
easy
A. Current Account
B. Recurring Deposit Account
C. Fixed Deposit Account
D. Cash Credit Account

Solution

  1. Step 1: Understand the saving objective.

    The goal is to accumulate savings gradually.

  2. Step 2: Identify the suitable account.

    Recurring Deposit allows systematic monthly savings.

  3. Final Answer:

    Recurring Deposit Account → Option B

  4. Quick Check:

    Gradual saving over months = RD Account ✅
Hint: Slow and steady saving = RD.
Common Mistakes: Confusing gradual saving with lump-sum FD deposits.
3. Which feature of a recurring deposit account helps inculcate financial discipline?
easy
A. High liquidity
B. Overdraft facility
C. Mandatory monthly instalment
D. Unlimited withdrawals

Solution

  1. Step 1: Identify the behaviour being promoted.

    The question focuses on financial discipline.

  2. Step 2: Match with the enforcing feature.

    RD requires compulsory monthly deposits.

  3. Final Answer:

    Mandatory monthly instalment → Option C

  4. Quick Check:

    Compulsory monthly saving builds discipline ✅
Hint: Compulsion in saving = discipline.
Common Mistakes: Thinking higher interest alone creates discipline.
4. What is the usual consequence of missing an instalment in a recurring deposit account?
medium
A. Account gets converted into savings account
B. Deposit amount doubles
C. Interest rate increases
D. Penalty may be charged

Solution

  1. Step 1: Identify the situation.

    The question refers to non-payment of an instalment.

  2. Step 2: Recall bank rules.

    Banks usually levy a penalty for missed RD instalments.

  3. Final Answer:

    Penalty may be charged → Option D

  4. Quick Check:

    Missed RD instalment = penalty applicable ✅
Hint: Skipping RD instalment usually attracts penalty.
Common Mistakes: Assuming instalments can be skipped without consequence.
5. Interest earned on a recurring deposit account is generally similar to the interest of which account?
medium
A. Fixed Deposit Account
B. Savings Account
C. Current Account
D. Salary Account

Solution

  1. Step 1: Recall RD interest structure.

    RD interest is calculated in a manner similar to FD.

  2. Step 2: Match with the correct account.

    Both RD and FD offer comparable interest rates.

  3. Final Answer:

    Fixed Deposit Account → Option A

  4. Quick Check:

    RD interest ≈ FD interest ✅
Hint: RD interest follows FD logic.
Common Mistakes: Comparing RD interest with savings account rates.

Mock Test

Ready for a challenge?

Take a 10-minute AI-powered test with 10 questions (Easy-Medium-Hard mix) and get instant SWOT analysis of your performance!

10 Questions
5 Minutes