A recurring deposit (RD) is a form of saving account cum investment option where you build a corpus by paying fixed installments every month to a financial institution. This is the opposite of a fixed deposit (FD) where you lock in a lump sum for a set period of time and get interest on it at the time of maturity. An RD gives you an opportunity to build a similar amount of savings but by paying the money in installments instead.
RDs are government-backed schemes that are designed for middle and lower middle-income-class sections of society. It offers them equal saving opportunities similar to those available to the upper-class earners. An RD gives a chance to people of limited income to build large savings over time which can be utilised for covering future expenses such as children’s education, wedding, etc.
The banking system of the country allows people to start investing in RDs for a minimum of Rs. 500 with no upper limit. As income rises, the amount of money invested can be increased in the multiples of Rs. 500 e.g. Rs. 1,000 or Rs. 1,500. The minimum tenure for this scheme is 6 months which can be extended for a period of 10 years at maximum. The total maturity value of an RD is estimated assuming that the investor will make their payments on time. In the case of an increase in the sum paid as monthly instalments, the maturity amount is revised as per the applicable interest rate and total contribution in a specific time period.
Customers can choose their preferred mode of payment to fund an RD account. They can personally visit the bank branch and make payments in person or they can opt for a ‘Standing Instruction’ facility. Standing instructions allows banks to deduct the amount designated by the investor directly from their savings bank account and credit it to the RD account as the monthly payment.
In the case of premature withdrawals, the interest will only be granted on the amount for the duration it was held by the bank. The account holder might also have to pay penalties for the same.
An RD is a great way to build good savings in a short span of time without having to invest a large sum of money as a one-time deposit. This encourages saving habits in individuals and families as well because they can think ahead and plan financial goals for themselves. This helps them start preparing and planning for their future needs by making small investments instead of being burdened by large investment options beyond their means. This is a win-win situation where you are saving some money every month and getting interest on it.
Recurring Deposit Nomination
Most banks offer recurring deposits with a nomination facility. An SBI Recurring Deposit account can be held solely or jointly but there can be only one nominee for one RD account. The investors or account holders have the authority of changing the nominee or make other changes through declarations. Minors can also be made nominees of RD accounts with suitable citation by the parent or guardian.
SBI Recurring Deposit
Being the most popular public sector bank in the country, SBI offers amazing saving opportunities through their RD scheme. The purpose of SBI Recurring Deposits is to empower the lower-income section of society so that they can also raise their standard of living and take advantage of education opportunities for their children by providing good facilities to them. However, SBI recurring deposit accounts can be utilised by anyone willing to invest and get decent returns.
SBI Recurring Deposit Features
SBI recurring deposit is somewhat different from traditional RD schemes as a person can start investing from as low as Rs. 100. The amount deposited can either be Rs. 100 or in the multiples of Rs. 100 and the account holder can choose to increase their monthly investment in the multiples of Rs. 10. The minimum period of investment is kept at 12 months up to a maximum of 120 months or 10 years. The rate of interest is subject to the TDR/STDR as per bank policy.
SBI also offers overdraft facility in its RD scheme. The overdraft of a linked account can go up to 90% of the available balance in the RD account. The bank issues passbooks for RD account as well allowing people to track their investments and estimate future returns. The returns are also subject to Tax Deducted at Source (TDS) for individuals who fall in the specific income tax slabs. Finally, in case of urgent financial need, one can avail the facility of premature withdrawal as per the TDR/STDR applicable.
SBI Recurring Deposit Penalty
SBI charges a small penalty for not paying the monthly instalments on time. The deposits fixed for a period of 5 years are subject to a penalty of Rs. 1.50 per Rs. 100 and for a period of more than 5 years, the penalty is Rs 2 per Rs. 100.
Income Tax on Recurring Deposit:
TDS is applicable on recurring deposits as per the interest earned. The principal sum or the total investment is not subject to any taxes according to the Income Tax Act but the interest is subject to TDS. As per the TDS effective from 1st June 2015, 10% should be deducted from the amount of interest earned. However, if the investor does not fall under any income tax slab then they can submit form 15G to avail complete tax exemption.
Senior Citizen Recurring Deposit
Senior citizens of the country are also encouraged to take the benefits of investing in RDs. The interest rates for senior citizens are higher than the applicable interest rates for younger investors. However, the financial institutions hold the authority for setting the minimum amount limit and tenure for such investors. Most banks offer interest rates of additional 0.25% to 0.75% over the regular rate to senior citizens.
Flexi Recurring Deposit
These are flexible recurring deposits in which investors can change the minimum and maximum amount as per their convenience. They can thus invest a flexible sum of money each month as per their monthly savings and availability of funds. However, banks usually counter this flexibility with slightly lower interest rates. The payable interest rate is usually fixed on the core amount while the interest on core multiples varies as per duration of the investment. Despite the lower rates, it is a good choice for individuals with variable income and/or expenses.[/vc_column_text][/vc_column][/vc_row]