A recurring deposit scheme is an investment option wherein you can invest an amount each month which will serve as a recurring deposit. Unlike a fixed deposit, where you need to pay the full amount initially, recurring deposit scheme has some flexibility as you can invest a sum each month and not burden yourself with a huge amount initially. Almost all banks offer such recurring deposit schemes and you can invest as little or even higher amounts in this scheme making it a very good investment option.
What’s more, you can also take a loan against a recurring deposit or avail of overdraft facility from your bank if you have a recurring deposit with them. If you avail of a loan, you will get a lower rate of interest against a recurring deposit. Recurring deposit schemes are not very heavy on the budget and you get the flexibility of deciding the amount that you wish to pay each month. It is much better than investing in the share market which is risky and is affected by market forces.
How much is the interest for recurring deposits?
The interest in most cases is the same as that applicable for fixed deposits but check with your bank before investing as interest rates tend to vary marginally. Senior citizens get a higher rate of interest. The entire amount along with the interest is credited into your account after the expiry of the tenure. You may even request the bank for an online transfer is you like.
Are premature withdrawals permitted?
Yes. Premature withdrawals are permitted in case of recurring deposits but you will end up with a lower rate of interest if you chose to do so. However, you need to invest the amount for a minimum period of one month before being eligible for interest. If you withdraw the amount before a month, then you won’t get any interest.
What happens if you default on a payment?
If you do not pay each month, then the bank is free to discontinue the scheme. You can always reactivate your account by paying the balance amount within the deadline for recurring deposit scheme. Each bank has its own deadlines for recurring deposits but in most cases you are allowed to pay the balance amount within six months. To ensure that you pay each month on time, you can even request the bank to auto process your deductions each month. The said amount will be deducted from your account automatically.
Other benefits of a recurring deposit
Recurring deposits are ideal for people who are just at the beginning phase of their career and do not have enough savings to invest in the share market or in fixed deposits. With a recurring deposit, you are free to invest a small amount each month so you don’t feel the pinch. You can even open a recurring deposit with as little as Rs. 500 per month. You can invest for a maximum period of ten years under a recurring deposit scheme.
