Missing a due date for a recurring deposit (RD) can have several implications for the investor, depending on the terms and conditions set by the bank or financial institution. A recurring deposit is a popular investment option in India, where individuals make fixed monthly deposits into an account for a specific tenure at a pre-determined interest rate. However, failing to meet the deposit deadline can impact both the return on investment and the account status.
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Penalty for missing payment
Most banks impose a penalty for missing a payment on a recurring deposit. Typically, the penalty is a small fee or a reduction in the interest rate for that particular month.
The fee for missing a payment can vary between institutions, but the late payment penalty is generally around ₹5-10 for every ₹1,000 of the missed installment. This can add up over time, especially if multiple payments are missed. In the worst-case scenario, repeated missed payments could lead to the closure of the account.
Also Read: Fixed Deposit vs Recurring Deposit: All about it
Impact on interest rates and maturity
Another major consequence of missing a deposit is the impact on the interest accrued. Banks may reduce the interest rate for the entire term of the recurring deposit if payments are not made on time. Additionally, if a payment is missed for an extended period, the RD account may be converted into a savings account or closed.
In this scenario, the bank may pay out the principal amount along with the interest earned till the last paid installment but without the benefit of compounding interest.
Grace periods
Some banks offer a grace period of up to 7-10 days to make the missed payment without incurring any penalties. If the payment is made within the grace period, the deposit continues as usual, and the interest rate remains unaffected. However, if the grace period lapses, the penalty clause is activated, and the investor may face reduced returns.
Reinstating account after missed payments
If an individual misses a payment, they can sometimes reinstate the RD by paying the missed amount along with penalties. This is usually done by extending the maturity date by the number of months missed. However, this option is not available in all cases, and it depends on the bank’s policy.
