How does it work?
The tenure ranges from three months to 10 years. Some banks have a lock-in period of 1-3 months. The money you invest in an RD, earns interest, and it gets compounded. Data from Deals4loans shows that as of June, interest rates on RDs were in the range of 7-9.10% per annum, depending on bank and tenor chosen. Senior citizens get an additional 15-25 basis points as interest. (One basis point is one-hundredth of a percentage point.)
In a regular RD, in case of delayed instalments, a penalty is charged as a flat fee or a percentage of the amount. For instance, with ICICI Bank Ltd, the depositor is liable to pay monthly interest at the rate of R12 per R1,000, and it depends on time and the amount. If you withdraw the amount before the maturity date, you will have to pay 0.5-2% as penalty, depending on the tenure. You cannot withdraw partially.
Some banks allow you to take a loan against the deposit. Generally, the loan amount can be 75-90% of the deposit value. For instance, State Bank of India allows you to take a loan of up to 90% of the deposit amount at an interest of 0.5% per annum above the interest rate of the RD.
What should you do?
It can also be useful for those who do not have access to financial instruments such as equity or debt. If you are in the lowest tax bracket or have no taxable income and are looking for guaranteed returns, it may work for you.
However, you should know that since RDs come under the definition of time deposits, the interest earned will attract tax deducted at source (TDS). So, TDS will be applicable if the interest earned on the RD (or if you have more than one with the same bank) exceeds Rs 10,000. If you come below the income tax bracket, you can avoid the TDS by filing Form 15G or 15H.
Posts
0 comments:
Post a Comment