A small savings scheme is a beginning towards making an investment commitment. A recurring deposit account is one such facility where a person can avail the interest benefits of a fixed deposit through regular payments instead of a lump sum.

A recurring deposit (RD) account requires the individual to deposit money periodically but like a fixed deposit account, the amount is locked. This, however, cultivates a savings habit in those adopting it.

The State Bank of India (SBI) or India Post are the two most popular choices in India for opening a savings or recurring account. Both SBI and India post (post offices) have the highest reach across India, reaching even in the rural parts of the country.
Here is a comparison between the two to help you make a better decision on where to put your savings.

Number of branches

SBI has 18,354 branches (as of 2016) across India while India Post has over 1, 54,882 (as on 31.03.2014) post offices in India. Indian post office system is one of the widely distributed postal systems in the world. SBI, on the other hand, has the best distribution network within the country as well as abroad for a nationalized Indian bank.

Requirements to open an RD account

To open an account with SBI or India Post, you will have to comply with KYC (Know Your Customer) requirements which needs you to submit a proof of identity and address to open a savings account in SBI as well as a post office. Other documents required will be Aadhaar and PAN card. You will also need passport size photographs.

If you are an existing SBI account holder, you can start a recurring account using net banking. You need a savings/current account to open an RD.

Eligibility

Any individual can open an RD account under both the institutions. Joint account options are also allowed. Post offices allow you to open an RD under the name of a minor. A 10-year old minor has the option to operate the account.

Types of Recurring Accounts

SBI: There are two types of recurring account provided by SBI: Regular and holiday savings account.
As the name suggests, the regular account is for usual recurring deposits to be made as per the customers choice. A holiday savings account was started by SBI in association with Thomas Cook for customers that wish to save money for a future Thomas Cook holiday package.

There is another account known as the "SBI Flexi Deposit" scheme. This scheme allows you to change deposit amounts as per your preference. It is similar to an RD. The minimum tenure for this scheme is 5 years and the maximum is 7. Also, you require to deposit a minimum of Rs 5,000 in a financial year and a maximum of Rs 50,000.

India Post: Post office offers a 5-year recurring deposit account.

Minimum monthly deposits

• In an SBI account, a minimum of Rs 100 needs to be deposited monthly. You can make deposits greater than Rs 100 but only in the multiples of Rs 10.
• In a post office RD account, you can make a minimum of Rs 10 as your monthly deposit. Deposits beyond that have to be in multiples of Rs 5.
• There are no maximum limits on deposits for both the institutions.

Tenure

An SBI recurring account needs to be made for a minimum period of 12 months and the maximum tenure is 120 months. Post office only allows a 5 year RD account.

Premature Withdrawals

Premature withdrawal of an SBI RD account, as well as India Post RD, is allowed.
However, you cannot make any partial withdrawals with SBI but you can make partial withdrawals up to 50% of the deposit amount in the case of the post office after completing a minimum tenure of one year.

Mode of payments

You can make payments through net banking to an SBI RD account but post office RD does not have this provision. Online payments can, however, be made through post office agents.

Default in payments

If you fail to make your monthly deposit, you will be charged

• SBI: A penalty of Rs 1.50 per Rs 100 per month for an RD of fewer than 5 years and Rs 2 per Rs 100 per month for an RD of over 5 years.
• Post office: A penalty of 5 paise for every Rs 5 of the deposit amount per month shall be charged. Your account will be discontinued if you fail to pay 4 consecutive times. If that happens, you need to revive it within the next to months to avoid permanent deactivation.

Interest Rates

Interest rates of India Post schemes are renewed every quarter. Read: Latest Interest Rates of Various Post Office Savings Schemes
Interest rates on SBI fixed deposits were raised recently, the interest rate for RD will be same as FD. Check: SBI Raises Interest Rates on Fixed Deposits

Conclusion

The choice of RD account depends on individual preferences. If you look at the tenure, SBI offers accounts for periods as low as 1 year whereas India Post only has one option. It also allows you to make payments through net banking.

On the other hand, if you compare the interest rates and amount to be deposited, post offices seem better. They offer an interest rate of 6.9% for a 5-year term compared to SBI's 6.5% presently. Deposits as small as Rs 10 can also be made to a post office RD.