Tuesday, June 25, 2019
Finance
 « Bank Savings

Recurring Deposit 

The Recurring deposit in Bank is meant for someone who want to invest a specific sum of money on a monthly basis for a fixed rate of return. At the end, you will get the principal sum as well as the interest earned during that period. The scheme, a systematic way for long term savings, is one of the best investment option for the low income groups. 

Features
The minimum investment of Recurring Deposit varies from bank to bank but usually it begins from Rs 100/-. There is no upper limit in investing. The rate of interest varies between 7 and 11 percent depending on the maturity period and amount invested. The interest is calculated quarterly or as specified by the bank. The period of maturity ranging from 6 months to 10 years.  

The deposit shall be paid as monthly installments and each subsequent monthly installment shall be made before the end of the calendar month and shall be equal to the first deposit. In case of default in payment, a default fee is chargeable for delayed deposit at the rate of Rs. 1.50/- for every Rs. 100/- per month for deposits up to 5 years and Rs. 2/- per Rs. 100/- in case of longer maturities.

Since a recurring deposit offers a fixed rate of return, it cannot guard against inflation if it is more than the rate of return offered by the bank. Worse, lower the gap between the interest rate on a recurring deposit and inflation, lower your real rate of return. Premature withdrawal is also possible but it demands a loss of interest. 

Returns
The rate of interest varies between 7 and 11 percent depending on the maturity period and amount invested. The interest is calculated quarterly or as specified by the bank. 

Amount invested per month Maturity amount in 2 years  (5%interest)
Rs 100 Rs 2626
Rs 500 Rs 13,132
Rs 750 Rs 19,698
Rs 3000 Rs 78,792

Advantages  
Some Nationalised banks are giving more facilities to their customer, State Bank of India give Free Roaming Recurring Deposit facility to their customers.  They can transfer their account to any branch of SBI free. Tax benefit on the interest earned on Recurring Deposit up to Rs 12000 Tax Deductible at source if the interest paid on deposit exceeds Rs 5000/-per customer, per year, per branch.

How to open an Account
A Recurring Bank Deposit account can be opened at any branch of a bank that offers this facility. However, some banks insist that you maintain a savings bank account with them to operate a Recurring Bank Deposit account. The terms and conditions vary from bank to bank. When a depositor opens a Recurring Bank Deposit account with a bank, a pass-book or an account statement is issued to him.