Recurring deposits (RDs) remain a safe and reliable investment option for ordinary people. By depositing a small amount each month, you secure your future. However, if you miss an RD installment due to financial constraints or a mistake, be cautious. Many people assume they'll pay the next installment, but even this small mistake can impact your hard-earned money. Banks can impose penalties and interest reductions, so it's crucial to pay every RD installment on time. Banks often impose penalties for missed RD installments. Let's understand the basics of this penalty and a smart way to avoid it.

One mistake, and the bank will charge a penalty.

People invest in RDs every month to secure their hard-earned money. However, if you forget to deposit an installment on time, the bank or post office may charge you a penalty. This charge may seem small, but it impacts your total deposit and profits in the long run. Therefore, it's crucial to make timely installment payments into your RD account. By using auto-debit or standing instructions, you can avoid this hassle and secure your future.

Banks May Charge 'Penalties'

People invest in RD accounts every month to protect their hard-earned money. However, if investors accidentally fail to deposit by the due date, banks or post offices may charge late payment fees or penalties. This rule applies to almost all public and private banks, and the penalty amount depends on the installment and the number of days of delay. There's no need to panic; the account isn't immediately closed; an alert is sent first, so you can secure your future by making timely payments.

Understand the full math of penalties.

Every bank has its own penalty amount, but there's also a simple method. Most banks charge a fixed penalty per ₹100.

Example:
Let's say your RD installment is ₹2,000 per month.
The bank's rule is to charge a penalty of ₹1.5 per ₹100.
Your penalty will be: (₹2000 / 100) x ₹1.5 = ₹30 per month.

What happens if you miss six consecutive installments?

People invest in RD every month to protect their hard-earned money. Occasionally, missing one or two installments isn't a big deal, but if you consistently fail to pay installments on time, the bank may take strict action. In most banks, if you miss six consecutive installments, your RD account is made inactive or closed. Therefore, set up auto-debit and make timely installment payments to protect your investment and ensure full profits.

Banks Close RD Accounts

People invest in RD accounts every month to protect their hard-earned money. Occasionally, missing one or two installments is okay, but missing six consecutive installments can result in the bank deactivating or closing your RD account. In this situation, the investor may get their principal back, but they won't earn the high interest rate of an RD. The bank will only pay interest equivalent to a savings account (2.5% to 3%). Therefore, it's crucial to set up auto-debit and make timely installment payments to ensure your investment is protected and you receive full returns. Clearly, the dreams you invested in through RD (such as a car down payment or a child's fees) will no longer be fulfilled. Instead of receiving lakhs of rupees upon maturity, you'll receive very little. All your profits are lost.

Use the "Standing Instruction" option.

Investing in an RD is a good way to protect your hard-earned money, but failing to pay installments on time carries the risk of penalties and account deactivation. If you don't want to miss out on the benefits of an RD, the smartest way is to set up a "Standing Instruction" or "Auto-Debit." This allows you to instruct your bank to automatically transfer funds from your savings account to your RD account on a specified date every month. This will help you avoid late fees and hassles, allowing you to fully reap the benefits of your investment.

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