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Recurring Deposits (RD) are still considered a reliable option for savings for common people. People save their future by saving a little money every month. But imagine what would happen if you forget to pay an RD installment due to lack of money or forgetfulness in a month? In such a situation, some people think that only one installment has been missed, and they will pay it next month. But this small mistake can 'lose' your hard-earned money.

Let us tell you that many times the bank imposes a penalty for missing the RD installment. So let's understand in simple words the whole math of this penalty and a smart way to avoid it.

One mistake and the bank will deduct a penalty!

Every month, take out a part of your hard-earned money and put it in RD so that tomorrow is safe. But if you accidentally forget to pay even a single installment on time, then the bank can hammer a 'penalty' on your dream. Even though it seems like a small amount, it reduces your total profit.

The bank charges a 'penalty'

Yes, if investors are unable to deposit the money by the last date of the RD installment by mistake, then the bank may charge you a late payment fee or penalty. By the way, this rule applies to almost all government and private banks. This penalty is decided according to the amount of your installment and the days of delay. But don't panic, your account is not closed immediately, for this, you are alerted first.

Understand the whole math of penalty.

Let us tell you that the amount of penalty is different in every bank, but there is a simple way to do it. Most banks charge a fixed penalty of Rs 100.

Example:
Let us assume that your RD installment is ₹ 2,000 per month.

The bank's rule is that it will charge a penalty of ₹1.5 per ₹100.

Your penalty will be: (₹2000 / 100) x ₹1.5 = ₹30 per month.

This amount may seem small to you, but if charged every month, it can eat up your interest.

If you miss 4 installments in a row...

If you miss RD installments 4 times in a row, the account may be closed. However, you can reactivate it within 2 months after the fourth default. If the account is not reactivated within this period, no further deposits can be made in it and the account is permanently closed.

If there are not more than four defaults in monthly deposits, the account holder can extend the maturity period of the account according to the number of missed installments at his own will. In this extended period, he can deposit all the missed installments.

The bank closes the RD account.

Let us assume that if your RD account is closed, then you get the biggest shock. In this situation, the investor can get back the deposited principal amount but does not get the high interest of RD. Yes, the bank will give interest on that money only equal to the savings account (2.5% to 3%).

You will not get the full maturity amount.

That means it is clear that the dreams (like the down payment of a car or child's fees) for which you have invested through RD will not be fulfilled now. You will get very little money instead of the amount of lakhs you get on maturity. All your benefits are lost.

Adopt the method of 'Standing Instruction'

So if you do not want to miss out on the benefits of RD, then there is a surefire and smart way to avoid all this hassle and penalty - 'Standing Instruction' or 'Auto-Debit'. Yes, you can instruct the bank once to deduct money from your savings account on a fixed date every month and automatically deposit it in the RD account.

Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.