A Recurring Deposit account allows one to deposit an amount for a specific period i.e. until the maturity period reaches and provides a decent rate of interest with no higher risks.
In case an individual who has an RD account wants to withdraw money in case of a financial emergency or any other reason before the maturity period that is called Premature Withradwl of Recurring Deposit.
It provides the facility to close the RD account in any sort of financial emergencies.
Rules related to premature withdrawal of recurring deposits
Well, one should never close an RD account before the maturity period but those who don’t have any other option should keep the following rules related to premature withdrawal of RD in their mind.
- The amount you want to withdraw should need to be in multiply of 5 only.
- According to the rules, one withdrawal is allowed before the maturity period.
- The withdrawal sum is covered at a maximum of 50% of the deposits in the account.
- In case a person wants to withdraw a sun he/she has to repay that either through EMIs or via a lump sum deposit.
- Banks / Post Offices can charge simple interest on the amount to be paid by the person withdrawing the sum amount.
- If a person fails to repay the amount withdrawn before RD maturity, the bank/post office will deduct the sum amount (including interest) before paying the maturity amount.
How to place a request for premature withdrawal of Recurring Deposit account
Through Mobile Banking
- Go to Banking
- Select Fixed/Recurring Deposits
- Select Premature withdrawal
Through Net Banking
- Go to Banking -> Deposits
- Select Premature Withdrawal of Deposit
(The amount will be credited to your account instantly)
Example of Premature Withdrawl of Recurring Deposit
Mr.Sumit is a Dancer. He earns 1Lakh per month which was not quite enough for him to meet his and his wife-daughter extraordinary needs. Like-Vacation plans, Tours, Purchase a new car, Own a house, College fees, etc.
That’s why Sumit has opened a Recurring Deposit Account to save money for a specific period to meet his and his family’s future financial needs.
One day Sumit went to his house where his wife and daughter were waiting for him. He was very happy on that day because he was going to buy a house own house for his family. He with his extremely happy feeling was going towards the dealer shop to buy the house.
After reaching the dealer Sumit gets shocked. The dealer earlier told him that he can buy the house with EMI. But now the dealer is saying that Sumit has to give half EMI and half cash in hand.
“How to Calculate Intrest Rate in your Investment” – RD Calculator
The house is 12 Lakh. Sumit was very worried because he can’t give 6 lakh half of 12 lakh in hand.
But he also wants to buy that house because it was in a good location and the stations-airport and the school of her daughter was near from that house and instead of that it was Sumit’s dream to own a house.
Sumit calls her wife and told her the whole situation. At that time his wife remembers him about the RD account which they opened 3 years earlier to meet their financial needs and invested 35,000 per month in that RD account. Sumit in hurry went to the bank to withdraw money from his RD account.
The bank manager told him that it is his first premature withdrawal. He had invested 35,000 per month regularly for every 3 years. The deposit made by him (excluding the interest) is 1,260,000 and he can withdraw a maximum of 50% of that amount.
This ensures that he can withdraw 6,30,000 from that amount which was sufficient for him because he only needs 6 lakh cash in hand. Now, he can repay the amount either through monthly installments or could pay a single lump sum.
The post office decides to ignore the simple interest on this withdrawal, but there could be examples where the interest an RD earns is modified until the amount is repaid.
In case Sumit fails to repay the amount before the RD matures, the post office will make necessary adjustments, deducting this sum from the final maturity payout.
What is the Intrest Rate in Early Premature Withdrawal?
- Any premature withdrawal means that there is a shortfall in their corpus, that needs to be adjusted accordingly.
- Individuals who close their accounts prematurely or withdraw prematurely will have to pay a fixed interest.
- Interest in RD’s can range between 6.5%p.a. And 8.5%p.a. Depending on various factors.
- If a person is making a premature withdrawal the interest rate falls to 1-2% and will be responsible for the interest paid by the person.
- The interest rate will come back when the amount will be paid back to the bank.
- Understand this with the above example, Sumit was earning an annual interest rate of 8.5% but because he makes a premature withdrawal of a sum the interest rate falls to 7%. The interest rate will again go back to 8.5% after he repays the amount he withdrawal.
Recurring Deposit Late Payment Charges
- The EMI on the premature withdrawal should be paid by the individual within the time otherwise the bank will charge a fine.
- If a person fails to pay the EMI within the period or 3 months from the due date the account can be closed.
- If the bank doesn’t close the account they will charge a fine in that amount.
- This fine usually ranges between Rs 1.50 for every Rs.100 borrowed and Rs.250 for every Rs.100 borrowed. Apart from this, a service fee of Rs 10 can also be imposed.
- Understand this with the above example, Sumit failed to pay the EMI for 3 months from the due date the post office decided to imposed a fine on him. The fine amount is Rs.1 for every Rs.100 borrowed, which amounts to Rs.120. He will be expected to pay this amount in addition to the EMI, plus a service charge of Rs.10.
Should You Make a Premature Withdrawl on your RD Account?
The answer may depend on your condition and financial needs. But I would suggest you not make a premature withdrawal. Suggest an alternative way to generate funds instead of making premature withdrawals.
But in case there is an extreme emergency and you couldn’t find any option form were to generate funds rather than premature withdrawal, it is suggested that you should pay the amount you withdrawal in time to enjoy the benefits of RD.
FAQ’s Related to Premature Withdrawal of Recurring Deposit
Can a Recurring Deposit account be closed before the end of the maturity term?
Yes, you can close a recurring deposit account before the end of the maturity tenure.
Can I withdraw the entire amount as part of premature withdrawal?
No, you can’t withdraw the entire amount. As per rules, the withdrawal amount is capped at a maximum of 50% of the deposit available in the account.
What happens if we close the RD account before maturity?
Banks may deduct a 1 or 2 percent penalty from the interest accrued on your RD amount for the period for which the amount was with the bank.
Is the interest rate of RD and FD are same?
No Intrest rate of FD is higher than RD.
Is it mandatory to keep the account operational for a particular number of years before premature withdrawal?
Yes, the account needs to be operational for at least a year i.e., 12 months.
Can I close my RD account?
Yes, you can close your RD account before the end of the maturity tenure.
Will the bank levy a penalty for premature withdrawal or closing the account?
Yes, banks will levy a penalty for withdrawing money from the RD account or closing the account before maturity.
Can I repay the withdrawn amount?
Yes, you can repay the withdrawn amount before the account matures.
Is RD account a great idea?
Yes, opening a Recurring Deposit account is the safest form of investment with a decent rate of interest.
Is Recurring Deposit useful?
Yes, Recurring Deposits are useful to meet short-term goals.
Does RD have a nominee/beneficiary facility?
Yes, RD and all such deposits account have a beneficiary assigned to the account.
Can we change the Nominee of the RD account?
Yes, you can change the nominee any time by just doing the simple paperwork with your bank.