Recurring Deposits (RDs) are the preferred savings choice of many Indians seeking secure, disciplined investment options. RDs come with fixed returns, varied tenures, and the ease of monthly deposits, perfect for salaried people or anyone wanting consistent savings and growth.
What if your situation changes and you wish to upgrade your monthly RD deposit halfway through the period? Will it increase your returns? Let’s explore whether increasing your RD amount midway is possible, what your options are, and whether it can meaningfully impact your overall returns.
How Recurring Deposits Work
Before making any changes, let us see how RDs work. When you open an RD, you agree to deposit a fixed amount each month for a set term, typically between 6 months and 10 years. The rate of interest is fixed at the time of opening and does not change thereafter.
Banks and other financial institutions compute recurring deposit interest through a formula with quarterly compounding. The more time your deposit remains, the more interest it accrues.
That said, every deposit made each month accrues interest for a different length of time. The first month’s deposit accrues interest for the whole term, the second month’s deposit accrues interest for a month less, and so on. So, planning and regularity are crucial to how much you ultimately save.
Can You Raise the RD Amount Halfway?
In the majority of conventional RDs, the rate of deposit is constant for the entire term. So, after committing to ₹2,000 a month for, let’s assume, 2 years, you can’t increase that at some point midway. If you suddenly deposit ₹3,000, the bank will either decline the additional amount or ask you to start a different RD.
Still, there are some NBFCs and banks that have launched flexible recurring deposit plans, where you can change the amount of deposit made by you each month within a specific range. They have popularly come to be known as flexi RDs or variable RDs. By these, you can hike (or even lower) your monthly deposit based on your cash flow within certain minimum and maximum limits.
Will It Boost Returns?
Yes, but there’s more to the story! Raising your RD amount midway can result in higher overall returns, but only if:
- You start a flexi RD or open another RD. As regular RDs do not permit halfway changes, the best option is to either open a fresh RD for a higher monthly amount or begin a flexi RD from scratch.
- Increased monthly contributions translate to increased principal to compound. The more you contribute, the more interest you receive, particularly if those increased contributions are made in earlier years of the period, when there is more time for compounding.
- Interest rate consistency matters. If your second RD or increased deposit fetches the same or a better interest rate, you’re in a win-win situation. If not, compare the blended return to see whether increasing the amount is actually beneficial.
Other Smart Alternatives
If you want to build your savings more and have excess funds halfway through your RD’s term, here are some options:
- Open a Second RD: Leave your original RD as it is and open a fresh one with the increased amount. This allows you to continue earning at the old rate while investing more.
- Invest in SIPs or FDs: Consider putting the extra amount into a SIP (Systematic Investment Plan) in mutual funds if you’re open to some risk and want better returns. Or, choose a short-term Fixed Deposit if safety is your priority.
- Close Prematurely and Open a New RD: Closing your current RD and opening a new one with a higher amount is an option for some people. But exercise care as this will generally carry a charge, and you can lose a bit of interest.
Final Word
Increasing your regular deposit amount halfway isn’t as easy as just increasing your monthly contribution, but it is possible with the right approach. Either with a flexi RD, a secondary account, or even a new savings product, growing your investment can enhance your yields. It’s all about knowing your options, knowing how compounding math works, and choosing your option wisely in line with your goals. If you’ve got a surplus, don’t let it sit idle. Make your money work smarter, even if it means taking a small detour from your existing recurring deposit plan.
