If you want to build a healthy savings practice instead of opening a savings account in a bank, you can invest in recurring deposits (RD) of banks or post office, which can provide higher returns than savings accounts. Customers that choose RD schemes are allowed to make contributions in installments and get the maturity amount upon maturity. Investing in recurring deposits is most popular among salaried persons who wish to deposit a certain amount each month and receive interest comparable to that of Fixed Deposits or FDs. So if you want to invest in a saving-cum-investment instrument, then let's discuss about the recurring deposit scheme of the State Bank of India (SBI) and post office.
Here are the key points you need to know about the SBI RD scheme before investing:
- SBI provides RD schemes that are available at all branches across India.
- The minimum and the maximum period of investment range from 12 months to 120 months.
- One can start making contributions by a minimum amount of Rs. 100/- per month (thereafter in multiples of Rs. 10/-) with no upper limit.
- For non-Deposit of monthly Instalments SBI levies a fixed amount of penalty to the responsible customer. For deposits with a maturity period of 5 years or less, a monthly charge of Rs. 1.50 per Rs. 100/- is levied. The bank charges Rs. 2.00 per Rs. 100/- per month for deposits having a maturity duration of more than 5 years.
- On Recurring Deposit accounts handed on or after the maturity date, where three or more sequential instalments have been missed, and the account has not been regularised, a service fee of Rs. 10/- will be imposed.
- If six sequential instalments are not made, the account will be terminated early and the remaining amount will be remitted to the depositor.
- Nomination can also be done at the time of account opening.
- On successful account opening, a universal passbook is also issued by the bank.
- One can transfer his or her RD account and also avail loan or overdraft facility.
- Interest rates as of term deposits will be applicable on recurring deposits.
- Premature withdrawal penalty for term deposits up to Rs 5.00 lacs will be 0.50 percent for all tenors, and for term deposits above Rs 5.00 lacs, the relevant penalty will be 1 percent for all tenors. The interest rate shall be 0.50 percent or 1% below the rate prevailing at the time of deposit for the duration the account remained with the bank, or 1% below the specified rate, whichever is lower.
- Deposits are subject to TDS, which can be avoided by submitting Form 15G/H to the bank.
SBI RD Interest Rates
For regular customers, SBI RD rates range from 5% to 5.4 percent, whereas senior citizens are eligible to get additional 50 basis points on their deposits. Here are the most recent RD rates of SBI which are in force from 8 January 2021.
|Tenure||Regular RD Rates In %||Senior Citizen RD Rates In %|
|7 days to 45 days||2.9||3.4|
|46 days to 179 days||3.9||4.4|
|180 days to 210 days||4.4||4.9|
|211 days to less than 1 year||4.4||4.9|
|1 year to less than 2 year||5||5.5|
|2 years to less than 3 years||5.1||5.6|
|3 years to less than 5 years||5.3||5.8|
|5 years and up to 10 years||5.4||6.2|
|Source: SBI, (Below Rs. 2 crore)|
Post Office Recurring Deposit (RD)
- One can open an RD account in a post office by making an initial contribution of Rs 100/- per month or any amount in multiples of Rs 10/-.with no upper limit.
- On a quarterly compounded basis the post office RD scheme is currently promising an interest rate of 5.8%.
- One can open a single account or a joint account with up to 3 adults.
- If a consecutive deposit is not made by the required date for a month, a default will be levied for each missed month. A default of 1 rupee per Rs 100 will be charged. The account becomes terminated after four normal defaults and can be retrieved within two months of the fourth default; however, if the account is not restored within this timeframe, no subsequent deposits can be made in the account, and it remains terminated. The account holder can extend his or her account if there are no more than four defaults in monthly contributions or installments.
- After contributing 12 instalments and keeping the account open for a year, the depositor is eligible for a loan of up to 50% of the account's balance. The interest rate on the loan will be charged at 2% plus the applicable interest rate on the RD account.
- After three years from the date of account establishment, an RD account can be closed early by submitting an application form to the relevant Post Office. If the account is closed prematurely, the interest rate of the Post Office Savings Account will apply.
- Post office RD account comes with a maturity period of 5 years. By submitting an application to the relevant Post Office, the account can be extended for the next 5 years. The interest rate that applied throughout the extension will be the same as when the account was first established.
- A nominee or claimant can file a claim of maturity amount upon death of the account holder. By submitting an application form to the relevant Post Office after the claim has been approved, the nominee/legal heirs can keep the RD account open till maturity.
When it comes to a secure investment with moderate returns, debt investments or debt instruments are mostly preferred. Since debt investments are not affected by market behaviour, investing in them can be a decent choice for your portfolio. In the current low-interest rate regime, investors are looking for an alternative to fixed deposits or recurring deposits as banks have been lowering FD rates. Although bank FDs or RDs are covered by DICGC and post office RD can be a secure bet, investing in them can give you good and assured returns if you stay invested for 5 years. But as an alternative, you can invest in National Savings Certificate (NSC), Tax Saving Fixed Deposits, and Debt Mutual Funds for better returns across the same maturity period.