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Indian Overseas Bank Recurring Deposit Interest Rates

You are making the right move by shopping around for interest rates as you look for the most favorable recurring deposit for your investment needs. A recurring deposit does have benefits like a fixed income commitment made by the bank, in the form of a fixed interest rate payable upon maturity. It also comes with much less risk than your average mutual fund although mutual funds and recurring deposits are somewhat similar because both allow you to invest small amounts monthly. However, a recurring deposit can deliver substantially lower than average returns if you do not pick the bank that is likely to give you the highest amount of earnings. 

That means that you should do what you’re doing right now, which is identify the interest rates of various banks. You have chosen to start with IOB (that is Indian Overseas Bank). In addition, right here on the IIFL blog, you can actually find the recurring interest rates of most Indian banks. 

The next step is to use an RD calculator to arrive at absolute values. Percentages can be confusing for the average investor to work with. How do you deduct 2% bank fees from 5% interest, for example? That’s why, use an RD calculator that lets you feed in interest rates and deposit tenures, and comes back to you with an absolute value, which means a value in rupees. You will know specifically how many rupees worth of interest you will get for your investment amount, verus a generic percentage. You can also use the RD calculator to find out what 2% worth of bank fees works out to be. Now deduct the absolute amount of fees from the absolute amount of interest to arrive at your earnings. 

Repeat this process for a handful of scheduled banks and compare your earnings. We specify scheduled banks because these are banks that are listed as having adhered to the 2nd schedule of the Reserve Bank of India Act, 1934 and are therefore somewhat safer for your investment choices. These banks also get low interest rates from the RBI, which they can pass on to depositors and debtors. 

As promised, here are the anticipated IOB RD interests rates for 2022

The deposit tenures on RDs at IOB range from 6 months to 120 months (that is 10 years) and the rates have been revised in November 2021. 

180-269 Days 4.90
270 Days to < 1 Year 4.90
1 Year to < 2 Years

(except 444 days)

5.15
444 Days 5.20
2 Years to < 3 Years 5.20

Additionally, the bank states that, “For Senior Citizens Additional Rate of 0.50% and for Super Senior Citizens (aged 80 years and above) Additional Rate of 0.75%” is applicable. 

Benefits of recurring deposits include:

  • The ability to start saving even with small amounts. One does not need to gather Rs 10,000 to invest. 
  • Short term investment tenure starting at 6 months is convenient for a lot of investors. 
  • Easy to understand and convenient – most banks offer RD schemes. 
  • Fixed-income and minimal risk. 

 

Additional benefits specific to the IOB RD include: 

  • Loans can be availed of at up to 90% of the principal amount and  the interest accrued. 
  • The minimum deposit amount is Rs 50, which is even lower than the Rs 100 minimum amount that most other banks have in place. 

 

Considerations when investing in recurring deposits

You might be able to get a higher interest rate in other types of investments. For example, SIPs in mutual funds also let you invest with small monthly installments. If you have risk appetite or the potential to accept risk, you might want to consider your other options. 

Penalties are often chargeable on non payment of installments. Choose a low minimum/ base amount for your installments. 

As discussed at the start of this article, different banks offer different interest rates. Shop around diligently. 

Conclusion

Recurring deposits come with pros and cons that must be weighed against one another and looked at through the lens of your investor profile. You can earn fixed income and your capital is at no risk. 

However if your goal is wealth generation, and if you want your capital to multiply quickly, you might need to keep RDs as only a portion of your entire investment portfolio and look at investments that have the potential to generate a higher amount of income, at a higher amount of risk. Risk and reward are directly proportional. If you are not okay with accepting more than minimal risk, RDs are definitely a good option to keep saving and beat inflation. However, if you do not mind some risk exposure in order to meet financial goals, then you should consider a mix of fixed income instruments like recurring deposits and fixed deposits, along with variable income instruments like mutual funds. 

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