Recurring Bank Deposit

Recurring Deposits in banks are one of the instruments of accumulating a particular amount periodically,

to help us during various occasions of unexpected financial burden. It is a good saving instrument for ordinary middle class, which has a fixed amount of revenue as its monthly income. It is also suitable for small time businessmen, Traders etc, as they do not have to block a large sum, which is a requirement for other types of saving instruments. Even some smart students open recurring deposit accounts with the pocket money they get from the parents. Almost all banks offer Recurring Deposit Scheme, and all of them have their own set of features.

Why recurring bank Deposits

You might wonder!!  “ Why Recurring Deposit Scheme” when there are many avenues for long term and short term Investments. Here are some of the features and benefits of this scheme:-

1. Bank Fixed Deposit Schemes are generally opened with a fairly fixed quantity of money ., say Rs 50000/- or a Lac etc. Whereas recurring Deposit scheme can be started with very small amounts, say Rs 1000/- Per Month.
2. Once started and once you get habituated for a couple of months, then we tend to think of it as a fixed monthly expenditure. That kind of thinking automatically leads to incremental savings every month, without creating a feeling that you are doing an investment.
3. It is a very liquid form of investment. That is, whenever an unexpected urgent need for additional cash arises, you can always use up this resource & again continue with the Recurring Deposit Scheme. Remember, it is very easy once you have considered it as an unavoidable compulsory monthly expenditure.
4. All Other avenues of investment typically blocking a fairly big chunk of money & most of them are not easily encashable, as readily as one can be with Bank Recurring  Deposits.
5. Recurring Deposits can be created upto 120 Months i.e. for 10 Years, starting from 6 months onwards. Just an investment of Rs 1000/- PM, when continued to a period of ten years, it would yield close to Rs 2.00 Lacs. No doubt a Neat Sum,  accumulated unaware of you ( Remember!  you have already considered it as a monthly compulsory expenditure) now suddenly comes in front of you. You can – at that time – plan to use such an amount on any important requirements of life.
6. You can obtain a loan against your accumulated deposit amount. Most banks give loans upto 95% of your accumulated amount. That means, one does not have to necessarily close the account, at the time of sudden need of money. You have the flexible option of keeping the account going, by repaying over the balance tenure of the recurring deposit.

Benefits of recurring deposit scheme

1. The Recurring Deposit scheme, like all other investment avenues, comes with its own set of benefits and they are:
2. Minimum amount of Deposit is Rs.10. No maximum limit. Deposit should be made every month within the calendar month. Default fee is chargeable for delayed deposit at 0.20 P. per month of delay, for Rs. 10 Denomination.
3. Maximum defaults allowed in an account is four (4). After four defaults the account is treated as ‘discontinued’. Discontinued account can be revived by paying defaulted deposits, within two months from the fifth default. If it is not so revived, the account cannot be continued.
4. For advance deposits, including deposit for current month, rebate is allowed at the rate: Denomination Rs.10. 6 advance deposits…….Re.1/- 12 advance deposits: 4/-
5. Premature closure is permitted on completion of 3 years from the date of opening. Interest is to be calculated as per the rules and rate applicable to individual savings account. at the rate applicable to savings account from time to time is calculated and paid.
6. After maturity of the account, it can be continued for a further period of 5 years with or without further deposits. During this extended period, the account can be closed at any time. Post maturity interest is paid at the prescribed rate.
7. Under the protected savings scheme, on the death of depositor before maturity of the account, the legal heir is entitled to get full maturity value, subject to the conditions:
   1.  Age of the depositor at the time of opening should be between 18 and 53
   2. Benefit limited to the maturity value of Rs.50 denomination
   3. Account should not have been discontinued as on the date of death
   4. At least two years should have been completed
   5. At least 24 deposits should have been made.
   6. For the first 24 months no default should be outstanding.
   7. No withdrawal should have been taken during the first 24 months.

What are the prevailing rates for recurring deposits

Various banks give different interest rates for different schemes. There are Kids’ Specific Recurring Deposit Schemes too, offered by many banks. All these schemes offer Interest amount ranging from 7.5% Per Annum to 9.5% Per Annum, which depends on the Sum Assured, The tenure opted for, and also depending on various schemes. Many banks have separate interest schemes made available exclusive to the senior citizens. Generally an amount of 0.5% Interest is paid more in almost all of the senior citizens schemes, which includes Recurring Deposits.

As you can see, Recurring Deposits have its own intrinsic value in a common man’s life.