Banks provide Recurring Deposits (RDs) as a capital-guaranteed debt instrument for a tenor of one to ten years. By investing a fixed amount monthly, investors can build a corpus for their short-term financial needs, much like a mutual fund’s systematic investment plan. RD investments are an excellent way to maintain financial discipline, although it requires consistent monthly investments. Conservative investors with regular income streams can consider RDs, but they should keep in mind that RD investments are taxable, and both the invested money and earned interest are taxed according to the tax slab.
After six consecutive rate hikes by the Reserve Bank of India (RBI) in the FY23, starting from May, several banks have increased their interest rates on 5-year tenor RDs. The cumulative rate hike amounts to 250 basis points (one basis point equals one-hundredth of a percentage point). Smaller private banks offer the highest interest rates, followed by small finance banks. Based on data compiled by BankBazaar, here are the top banks that offer the best interest rates for a 5-year tenor RD investment
- DCB Bank – Offers 7.60% interest, the highest interest rate among private banks. With a monthly investment of Rs. 5,000 for five years, investors can expect a corpus of Rs. 3.66 lakh.
2. Suryoday Small Finance Bank – Offers 7.50% interest, the highest interest rate among small finance banks. With a monthly investment of Rs. 5,000 for five years, investors can expect a corpus of Rs. 3.65 lakh.
3.IndusInd Bank – Offers 7.25% interest on RDs for a five-year tenor. With a monthly investment of Rs. 5,000 for five years, investors can expect a corpus of Rs. 3.62 lakh.
4. AU Small Finance Bank and Ujjivan Small Finance Bank – Both offer 7.20% interest on RDs for a five- year tenor. With a monthly investment of Rs.5,000 For five years, investors can expect a corpus of Rs. 3.62 lakh.