It is a savings avenue and it is very similar to the mutual fund’s systematic investment plan or SIP. Its a recurring deposit a particular amount of money is deducted every month from your bank account. In order to have a functioning recurring deposit, the very first thing you require to do is to apply for a recurring deposit account and request the bank to deduct the amount you wish to be deducted from either your savings or current bank account every month. Almost all banks offer the facility of internet banking through which your deposit can be deducted as well. What’s more the deposit can start from as little as Rs 5 and Rs 500 with private sector and private sector banks respectively. The investment time ranges from a minimum of 6 months to a maximum period of 10 years.
How do you calculate the interest?
It is absolutely the same, just like in bank fixed deposits. As of now ICICI bank which is a private sector bank is giving up to 7.5 percent interest for a period of one year and SBI which is a national public sector bank offers 7.75 percent for a deposit period of one year. However the senior citizens are entitled to an extra 0.5% interest .
Can you withdraw the amount before the maturity time?
Ya surely can do it. However the interest paid will be lower than the base rate for the time the deposit has been with the bank. Some banks have a penal interest of 1–2 %. Having said that it is always sensible to know that a recurring deposit account has a lock-in period of one year and if you want to withdraw the amount in less than a month’s time, you will not get any interest.
What if you are a defaulter?
If in case you end up being a defaulter which means you have missed paying your installments for one to 6 months, the bank is entitled to discontinue your account. However you can very well get the account back when you pay the outstanding amount within a month from the date on which you defaulted.
Are there any other benefits?
Yes! The main benefit is that you can also take a loan or a avail an overdraft facility up to 90% against the ¬required amount . this is surely a better option during an emergency instead of withdrawing your fixed deposit because that will continue to earn interest and at the same time you would be getting a loan at a rate lesser than a personal loan.
When is the right time to apply?
It is a good saving method to create an emergency funding for something you have in mind anyone who has a lower income or perhaps are starting off their career can very well make use of a recurring deposit account.