Saving is a good habit, but it is even more important to manage it smartly. So, if you miss the installment of RD, then many times the bank can impose a penalty on it. So let's understand in simple words the whole math of this penalty and the smart way to avoid it.

A recurring Deposit (RD) is still considered a reliable option of savings for common people. By adding a little money every month, people secure their future. But think what will happen if you forget to pay any installment of RD in any month due to lack of money or forgetfulness? So in such a situation, some people think that only one installment has been missed, we will pay it next month. But this small mistake can 'cheat' your hard earned money.

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

One mistake and the bank will deduct a penalty!

Every month you take out a part of your hard-earned money and put it in RD so that your future 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 not able to deposit the money by the last date of the RD installment by mistake, then it is possible that the bank may charge you a late payment fee or penalty. By the way, this rule is applicable in 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, you are alerted for this first.

Understand the complete math of penalty

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

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.

In this 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 forget 4 installments in a row...

If you miss the RD installment 4 times in a row, then the account may be closed. However, after the fourth default, you can reactivate it within 2 months. If the account is not reactivated within this period, then 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, then the account holder can extend the maturity period of the account according to the number of installments missed at his will. He can deposit all the missed installments in this extended period.

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 on it. 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

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

Adopt the method of 'standing instruction'

So if you do not want to miss the benefits of RD, then there is a surefire and smart way to avoid this entire 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.