Recurring Deposit (RD) scheme is one of the safest investment schemes in India as long as you pay your installment in due time and completes the agreed term without disputes. Once you complete your term, you can withdraw the amount invested along with interest generated. There will be a tax deduction on the final amount by 10% of the interest generated if the interest is above Rs.10,000 as it falls under income from other sources. But if you forget to pay the monthly installments in due time or if your financial condition deteriorates due to which you miss consecutive monthly installments for 3 to 6 months, you will face penalties and consequences as per the policy of the scheme.
Penalty 1 – Failing To Pay Monthly Installments On Exact Dates
If you forget to pay the monthly installments on the exact date of payment, you will face a penalty on the monthly installment as per the number of days the payment has been delayed. The penalty will be deducted from the interest amount already generated. You can sign up for auto deduction of the monthly installment from your bank account to avoid it.
In case, you are likely to be out of state on the payment dates; you can always pay days and months in advance. Alternatively, you can go for a flexible recurring deposit scheme where you can delay a monthly payment for a month without penalty.
Penalty 2 – Failing To Pay Monthly Installments For Consecutive Months
Due to an unforeseen financial crisis, it may so happen that you fail to pay the monthly installments of your recurring deposit for months like 3 to 6 months. According to the policy of the bank or post office, your recurring bank can be closed or deactivated. If it is deactivated, you can activate it by paying all the dues whenever you can. But if it is closed, you have to go for a premature withdrawal in which the interest rate will be less than what was agreed upon, and there would also be a certain percentage penalty levied on the amount.
Penalty 3 – Frequent Non-Payment Of Monthly Installments
It might so happen that you miss the monthly installments a few times in a year. Payment does not need to be consecutive and can be periodic. Some banks have a policy that states that if you make six defaults during your tenure, they reserve the right to close your recurring deposit account in which case you have to go for premature withdrawal.
Penalty 4 – Frequent Overdue Of Scheduled Payment
A bank reserves the right to alter your maturity amount based on their policy in case you cross a certain limit of frequent overdue of scheduled payment. The alteration in the maturity value could be due to a penalty or lowering of interest rate.
Penalty 5 – Default In Installment Payment For Three Consecutive Months
Most of the banks take a service charge of Rs.10 in addition to the penalty levied if you miss installment payment for three consecutive months. In case your RD has a tenure of 5 years or less, the penalty will be Rs.1.50 per Rs.100 for every month. In case the tenure is more than 5 years, the penalty will be Rs.2.00 instead of 1.50.
Before opting for recurring deposit, read the terms and conditions of penalty carefully as it varies from bank to bank. Calculate RD maturity amount using this website and fix your monthly installment that you can pay in worst case scenario to avoid penalties.