How Recurring Deposits Work A recurring deposit (RD) is a savings instrument where a fixed amount is deposited every month for a predetermined period. The bank pays interest on the cumulative amount, and the investor receives the principal plus interest at maturity.
What Happens When You Miss One Installment? Banks typically levy a penalty for late payments. **Adhil Shetty, CEO of BankBazaar, notes that public and private banks charge about Rs 1.50 for every Rs 100 of the missed instalment each month of delay.** For example, if your monthly contribution is Rs 10,000 and you skip a month, the penalty would be Rs 150.
The overdue amount, together with the penalty, can be paid at any time to bring the account back in order. Depending on the bank’s policy, the penalty may be collected immediately or deducted from the maturity proceeds.
Grace Periods and Regularisation Most banks allow a grace period of five to six consecutive missed instalments. During this window, you can settle the overdue amount and the associated penalty to keep the RD active. The exact duration varies by institution and the specific RD scheme, so it is advisable to check the terms with your bank.
Consequences of Multiple Missed Payments If you fail to pay for six consecutive months, the RD may be marked as irregular and closed prematurely. At that point:
* New monthly contributions are usually halted. * The remaining balance may be transferred to a linked savings account, depending on the bank’s rules. * The final payout will be recalculated, considering interest only for the period the money was actually deposited and applying a premature withdrawal penalty.
This can result in a payout that is significantly lower than the original maturity amount you had planned.