Recurring Deposit

The income-tax filing is over for most of the salaried people and everyone now must have taken a sigh of relief with all the paper-work and headache now gone till the next year. It is really a great pain to collect a lot of money during the Feb-March period for putting it in various tax-saving schemes or paying life-insurance premiums for submitting the I-T proofs. It sometimes drains out almost entirely your salary to 'invest' in all these schemes.

Once you do that you make a promise to yourself that from next year I will save money from the very beginning so as to avoid such hassles, but every year it looks like the same old story. If you are stuck in such a cycle, then I assure you that you are not the only one.

The reason for most people not able to save money every month is because

a) People do not plan tax-saving unless made compulsory at year-end
b) There is no mechanism which automatically deducts certain portion of salary to be kept for year-end tax investments

I have realized that point (a) is very difficult for even the most disciplined financial planner. But there are always schemes which one can opt to materialize point (b). One such scheme is the recurring deposit offered by many banks.

For example UBI offers a recurring deposit at 9% PA for a period of one year. This for me a perfect way to put aside money every month in a non-risky investment earning a decent returns.

Let say I have to invest 1,00,000 Rs every year around Feb in various tax-saving policies. I opened a recurring deposit of 10,000 Rs from May for ten months. So in Feb I don't have to squeeze my other commitments to make way for the tax-saving schemes. It is very easy to time your recurring deposit maturity at the same time you would need funds. You can even open a recurring deposit in the same bank that your salary comes into and ask for a direct debt. This way every month you would have less money to spend, but that automatically will take care of your year end investments.

The same mechanism can be used for any of your short-term needs.

PS: Surprisingly for me, HDFC doesnt have recurring deposit scheme.


  1. Diwakar Mahanthi11:34 AM

    Hi KM,

    Thanks for sharing wonderful information that too from your own experiences. Enjoyed reading your blog. Keep up the good work.

    Diwakar Mahanthi

  2. Thank you for valuable pieces of advice. I always have problems with saving money.

  3. Thanks for your comments, it encourages a blogger like me.

  4. Yammanuru12:36 AM

    Thanks KM,
    Great info for a young man who wants to save money. U know its very difficult.I will take ur suggestion

  5. Anonymous11:14 PM

    hi, good site very much appreciatted

  6. Thank you anonymous for visiting the blog.