Bank of India RD – Interest Rates, Features & Tax Implications

Bank of India is considered as one of the top 5 Indian banks. This financial institution which was founded in 1906, had been nationalised in the year 1969. It currently has more than 5000 branches across India and overseas.

Bank of India has been known in the financial sector since decades for providing exceptional services and facilities to its customers.

It provides an array of deposit schemes and term deposit facilities for non-banking entities or individuals such as Bank of India Recurring Deposit, Flexi Instalment scheme, Fixed Deposit, etc.

Recurring Deposit is a monthly deposit scheme available in most financial institutions and NBFCs which enables individuals to invest a fixed sum of money every month in the recurring deposit account. Interest on the investment is compounded quarterly.

The Bank of India Recurring Deposit has a lock-in period stretching from 6 months to 120 months or 10 years. Depending on the lock-in period, the interest rate is determined. Because of the compounding effect, amount accumulation upon maturity substantially increases compared to the initial investment.

Therefore, recurring deposits are a safe option for moderate wealth creation.

Interest Rates on Recurring Deposits

Bank of India offers an attractive rate of return on recurring deposits depending upon the holding period of such deposits. The interest rate initially increases with increase in the lock-in period. However, it is reduced by a minimal percentage after the lapse of 3 years to balance with the compound effect in some cases. Also, BOI offers a higher rate of interests for senior citizens.

The following table demonstrates the interest rates offered on Bank of India RD for an Indian Citizen

Lock-in period Interest rates for recurring deposits in case of general citizens 
Recurring Deposit Interest Rates for Senior Citizens (p.a)
Below Rs 2 Crore Between Rs 2 – 10 Crore Below Rs 2 Crore Between Rs 2 – 10 Crore
180 – 269 days 6% 5.7% 6.5% 6.2%
270 – 364 days 6% 5.7% 6.5% 6.2%
365 – 729 days 6.5% 6.3% 7% 6.8%
730 – 1094 days 6.25% 6% 6.75% 6.5%
1095 – 1824 days 6.25% 5.75% 6.75% 6.25%
1825 – 2919 days 6.25% 5.75% 6.75% 6.25%
2920 – 3650 days 6.25% 5.75% 6.75% 6.25%

The applicable interest rates on RD for NRE accounts is demonstrated in the table below

Lock-in period  Interest rates on deposit amount below Rs 2 Crore (p.a) Interest rates on deposit amount between Rs 2 – 10 Crore (p.a)
365 – 729 days 6.7% 6.7%
444 days 6.75% 6.7%
730 – 1094 days 6.7% 6.7%
1095 – 1824 days 6.5% 6.5%
1825 – 2919 days 6.5% 6.5%
2920 – 3650 days 6.35% 6.35%

Note: These rates are changeable at bank’s discretion

Interest on recurring deposit is calculated using the following formula –

I = {P*n (n+1) r}/2400

Here, I is the Compounded Interest Amount

P is the Principal Amount

n is the lock-in period in months

r is the applicable rate of interest

For example, Mr A, who lives in Delhi and is below 60 years of age, decides to open an RD account with Bank of India with a deposit of Rs 500 for 5 years. Therefore, the applicable interest rate for him is 6.5%. In that case, his total interest amount at the end of maturity period will be Rs 5495, and his total maturity amount will be Rs 35495.

Features of BOI Recurring Deposit

The features of recurring deposit from Bank of India are listed below –

  1. Minimum investment: The minimum deposit amount in the Bank of India RD scheme is Rs 500 for individuals residing in urban or metropolitan areas. For individuals living in suburbs and rural area, the minimum deposit amount is Rs 100. An individual can open an RD account with the mentioned deposit amounts.
  2. Maximum limit: In case of recurring deposit with BOI, there is no maximum limit to the amount of investment an individual can make over the tenure.
  3. Flexible investment: In recurring deposits, a monthly investment of the minimum amount is mandatory. However, an individual can decide to deposit more than the regular amount for any month.
  4. Payment due date: Individuals need to deposit their monthly investments to any BOI branch within the last working day of the pertinent month.
  5. Penalty: If an individual postpones in his/her monthly deposits or skips it, he/she shall be charged with a penalty. In the case of Bank of India RD scheme, the penalty amount is Rs 1.5 per Rs. 100 for deposits with lock-in period less than 5 years, and Rs. 2 per Rs 100 for deposits with lock-in period of more than 5 years. However, in the case of postponements, such penalty is waivered by the bank if he/she pays the equivalent number of advances as he/she has delayed.

Tax Implications on Recurring Deposit

Income from the recurring deposit is not exempt from tax. The investment amount and interest amount earned is included under the income head “Income from Other Sources.”

As per Finance Bill 2015, TDS of 10% is deducted on interest income. In case your interest income from all your deposits including recurring deposits, savings deposit, fixed deposit, etc. is less than Rs 10000, then you need to file Form 15G or 15H to declare the same to your bank.

It prohibits the bank from deducting TDS from your interest income. You can decide to file Form 15G even if your interest income is more than Rs 10000. In that case, you will have to pay the aggregate TDS amount during tax filing.

Account Types for Recurring Deposit of BOI

The list for types of eligible individuals who can open a recurring deposit in BOI are mentioned below –

  • Individuals and Hindu Undivided Family
  • A joint account held by two individuals
  • Minor account handled by legal guardians of an under-aged individual.
  • Differently-abled individuals

Documentation required for BOI Recurring Deposit

These following documents are required for address proof –

  1. Electricity Bill
  2. Telephone Bill
  3. Passport
  4. Bank Statement
  5. Certificate/ID card issued

The following documents are required as identity proof –

  1. Passport
  2. Voter ID card
  3. PAN card
  4. Government ID card
  5. Driving License
  6. The Senior Citizen ID card
  7. Ration Card

Other Investment Options

Although the recurring deposit is a safer investment option, the rate of interest offered on such deposit is not sufficient if your main objective is exponential wealth creation. Therefore, you can look for other investment options for more profitable capital employment, such as stocks, government bonds, bills, Mutual Funds, etc.

These market-linked investment options have considerable return potential and develop a significant corpus over time. Equity shares and stocks have high-profit yielding and high-risk factors. Also, direct investments in the market can prove difficult if you are a rookie investor.

Mutual Funds are a much safer option compared to direct investments. These are investment pools used to purchase equity shares, stocks, fixed income instruments, etc. You can either invest in equity funds which have a high-profit yielding capacity like equity shares and have a lower risk factor compared to equity shares but higher than other kinds of mutual funds.

If you have a moderate risk appetite, you can opt for hybrid funds which are used to purchase a mix of equity shares and fixed income instruments to balance the profit-yielding factor and the risk factor. It also diversifies one’s investment portfolio.

Bank of India Recurring Deposits is a suitable option if you do not prefer to take risk while enjoying the benefits of steady returns.