Missed your RD instalment? Here’s how the delay can affect your account

Fresh updates from the financial markets indicate that A recurring deposit (RD) works on the simple principle of making a set contribution every month. But what happens if you miss one of those payments? A single missed instalment usually does not mean the account is closed immediately. Banks generally give depositors time to clear the overdue amount, subject to applicable charges.

That stated, if the missed payments continue for several months, the consequences can become more serious. The account may be classified as irregular and could eventually be closed, affecting both the continuation of the RD and the anticipated maturity proceeds.

What happens if you miss one RD instalment?

Banks generally apply a penalty when an RD instalment is not paid on time. According to Adhil Shetty, CEO, BankBazaar, public and private sector banks charge around Rs 1.50 per Rs 100 of the monthly instalment for each month of delay.

“For example, if your monthly RD instalment is Rs 10,000 and you miss a month, the bank will charge a penalty of Rs 150,” Shetty stated.

The overdue instalment, along with the applicable charge, can be paid to bring the account up to date. Depending on the bank, the penalty may either be collected when the overdue amount is paid or adjusted against the maturity proceeds.

How long can you delay an RD payment?

Banks allow depositors a window to regularise the account rather than closing it after the first missed payment.

Shetty stated depositors typically get a grace period covering up to five or six consecutive missed monthly instalments.

“During this timeframe, you can pay the overdue amount along with the nominal penalty to keep the account regular,” he stated.

The exact period can vary between banks and RD schemes. As a result, a depositor who misses a payment should check with the bank and clear the dues within the permitted period.

What happens if you miss multiple instalments?

The situation can change if the depositor keeps miss payments. According to Shetty, failure to pay for six consecutive months can result in the RD being classified as irregular and closed prematurely.

At this stage, the depositor may no longer be allowed to make further monthly contributions to the RD. The remaining balance may be transferred to the linked savings account, depending on the bank's rules.

This can additionally disrupt the original savings plan, as the depositor will no longer continue accumulating funds in the same RD until its scheduled maturity. Can a missed RD be revived?

If the account has not crossed the bank's permitted limit for missed instalments, the depositor can regularise it by paying the pending instalments and applicable charges.

“If you clear the pending dues and penalties before reaching the maximum five or six-month limit, the account stays fully active, and the maturity amount is paid as scheduled,” Shetty stated.

The final payout can additionally be softer than the amount originally anticipated. In case of premature closure, the bank may calculate interest only for the period for which the money remained deposited and apply the applicable premature withdrawal penalty.

“This results in a final payout that is much softer than the original maturity amount you had scheduled for,” Shetty stated.

For RD market participants, as a result, missing one payment need not derail the investment. The bigger risk arises when overdue instalments stay unpaid for several months, and the account crosses the bank's permitted limit.