The recurring deposit comes with the option to deposit a pre-specified amount at pre-decided intervals. Investors get to choose the fixed amount that they want to invest every month.
Most people plan to accumulate funds for investment, but in the end, start procrastinating and find it difficult to save enough. Hence, industry experts suggest one should start saving small on a monthly basis. Recurring deposits (RD) are known to be one of the best options for such investments. You can open a recurring deposit account either with a bank or a Post Office. For instance, both the Post Office and State Bank of India offer investment in RD to their customers.
RD is a type of term deposit that lets its customers save a fixed amount through regular monthly deposits over a fixed period of time. The recurring deposit comes with the option to deposit a pre-specified amount at pre-decided intervals. Investors get to choose the fixed amount that they want to invest every month. Note that you cannot alter the installment amount once it is fixed. Such as, if you start an RD account with a bank for Rs 2,000 every month for a year, you will have to keep investing the same amount on the same date every month for a year.
However, the specifications of RD offered by banks and Post Office vary in terms of the tenure offered, the minimum amount required for opening an account, etc. For instance, in a Post Office, the minimum amount required for opening an RD is Rs 10 per month, whereas SBI has marked Rs 100 as the minimum monthly amount required to open an RD account.
Here is how recurring deposits offered by the Post Office and State bank of India differ:
Tenure: Post Office recurring deposit comes with a tenure of 5 years. On the other hand, the tenure for the SBI RD account varies between 1 year and 10 years.
Interest rate: State Bank on its RD offers an interest rate ranging from 5.80 per cent to 6.25 per cent for the general public and an additional 0.50 per cent interest rate for senior citizens. Comparatively, the interest rate offered by Post Office RDs is quite high at 7.2 per cent per annum, compounding quarterly.
Account opening: To open a recurring deposit account in the Post Office, you need to visit your nearest post office branch. However, investors can open an SBI recurring deposit account online through net banking.
Minimum deposit: For opening a Post Office RD, the minimum amount required is Rs 10 per month or any amount in multiples of Rs 5. In case of an RD account with SBI, depositors need to make a minimum monthly deposit of Rs 100. There is no maximum limit set on the investment in both the places.
Additional charges: If you do not make a subsequent deposit on the prescribed day in a Post Office RD account, a default fee of Re 0.05 for every Rs 5 is charged. Also, if you make 4 consecutive defaults, your account will get discontinued, which you will be able to revive in 2 months. For non-deposit of monthly installments in the recurring deposit account, SBI charges a penalty of Rs 1.50 per Rs 100 per month for accounts with a tenure of 5 years and less. For accounts above 5 years, the bank charges Rs 2 per Rs 100 per month.