Recurring Deposits is a kind of term deposit scheme which is very popular among Indians. It allows investors to save and invest simultaneously. They are secure and provide a definite assured return at the rate of interest same as the FDs. But can a person withdraw his RD prematurely before the date of maturity?
Recurring Deposit is that type of account where you authorize your bank to deduct certain fixed amount of money every month from your savings account. The tenure or time period varies with each bank. For e.g. in the case of SBI the minimum tenure given is 1 year on the other hand tenure for ICICI it is a minimum of 6 months. But for both of these banks the maximum tenure is 10 years. Minimum deposit amount varies with each bank and especially between public and private banks. Private Banks usually have higher monthly deposits.
How to Break RDs prematurely?
The procedure to break both RD and FDs prematurely before the maturity period is same. In situation like this the interest shall be paid at the rate that is applicable during the time of the deposit only for the time the concerned deposit has remained with the bank. The premature breaking of RD incurs a penal rate of interest as directed by the concerned bank on the date when the deposit was made.
Penalty Charged on Premature withdrawal of Deposit
In Recurring Deposits early withdrawal is possible but there are certain deductions that are made like the interest rate that is offered would be less when compared to the normal base rate which is 8.40% p.a. Some banks deduct penal interest at the rate of 1% or 2% for the remainder of deposit in the bank.
Minimum lock-in period for recurring deposits is 1 month and if an account holder requests for premature withdrawal before the lock-in period, he would earn zero interest. And in cases like these banks will only refund the principal amount that was deposited to the account holder. If any incentive was offered, it will also be denied on premature withdrawal of such deposit, in addition to the penal interest.
IDBI Bank, Yes Bank, ING and Axis Bank are certain banks who do not charge any penalty on premature breaking of RDs.
Late Payment Charges or Default Payment Charges
In the event when an account holder misses to pay 3 consecutive or more monthly instalments (varies for each bank) his/her account would be permanently closed or discontinued until and unless the account holder pays the outstanding payment that is due. However the bank may penalize you by charging a service charge which is very nominal Rs. 10.
If the account holder does not want to continue with the RD or its revival and wants his money back then the account holding bank will apply premature withdrawal rules and accordingly the rules will be applied.
