Union Bank RD – Types, Benefits & Interest Rate

Union Bank, one of India’s largest government-owned banks, offers recurring deposit facilities to individuals at lucrative interest rates that allow them to build a substantial savings corpus over the deposit tenure.

For most banks, RD schemes demand fixed monthly instalment amounts, where individuals have to deposit the same amount, each month, throughout the tenure. This can at times be difficult for some account holders, especially for those without a sizeable disposable income.

However, the Union Bank Recurring Deposit offers flexible features which make it easier for individuals to accumulate the interest on their deposit through monthly remittances.

Types of Recurring Deposit Union Bank of India Scheme –

There are 2 types of Union Bank RD schemes which individuals can avail of. These are –

  1. Cumulative deposit scheme.
  2. Union Monthly Plus scheme.

Each of these schemes has their own set of features and benefits that can help account holders to enjoy the benefits of an RD, without the limitations imposed on them.

Cumulative Deposit Scheme –

This scheme is akin to traditional recurring deposit schemes with additional benefits. The Union Bank of India RD scheme allows individuals to discontinue payment of monthly instalments at any given period of time if they can provide a genuine reason for the same.

In case of this interim discontinuation, the existing amount in RD account will be converted into a fixed deposit and will reflect the benefits of an FD for the rest of the term.

Some of the features of Cumulative Deposit Scheme include –

  1. Individuals, firms, corporates, clubs, societies, associations, etc. can hold a cumulative RD account provided they are Indian residents. Each CRD account can be held jointly by two or more individuals.
  2. The above mentioned entities have to be Indian residents to hold a CRD account.
  3. Minors can be RD account holders only under the guidance of parents or legal guardians.
  4. Investors can choose the investment tenure of this Union Bank Recurring Deposit ranging between 6 months and 120 months according to their convenience.
  5. An individual can choose to invest an amount as low as Rs.50 in their RD account.
  6. Individuals do not have the flexibility to alter their deposit amount selected at the time of their account’s initiation. However, if depositors choose to discontinue their account, for a valid reason, the amount already deposited will be treated as a fixed deposit for the rest of the tenure.
  7. The interest rate on CRD account is applicable on a quarterly basis. The deposited amount with accumulated interest will be payable after one-month post payment of last instalment amount.

Union Monthly Plus Scheme –

Under this Union Bank of India Recurring Deposit scheme, individuals can enjoy flexibility in terms of the quantum of their investment amount. They can choose to step up with their monthly remittance amount in multiples of the initial amount deposited in the account.

Additionally, these accounts do not attract any additional charges or penalties on delayed payments or premature withdrawals, making them more profitable than regular RD schemes.

Some of the features and benefits offered by the Union Monthly Plus Scheme includes –

  • Indian resident individuals, HUF, corporates, institutions, etc. are eligible to open this RD account.
  • Depositors have to choose an initial amount or “core amount” which is the amount, based on which investors can step up their remittance. However, individuals cannot choose their future instalments below the fixed core amount.
  • The minimum term of investment for this scheme is 6 months while the upper cap is fixed at 5 years.
  • Depositors can also avail a loan of up to 75% of the accumulated amount in their RD account.

Interest Rates Applicable on the Recurring Deposit Account – 

The interest rates applicable on both the above two categories of Union Bank of India RD scheme are illustrated in the table –

Recurring Deposit Period Interest Rates (in % per annum)
180 days 6.50
181 days to < then 10 months 6.50
Between 10 months and 14 months 6.75
>14 months to 3 years 6.60
>3 years to 5 years 6.70
>5 years to 10 years 6.70

Note – The table above is for the interest accumulated on the total deposited amount of less than Rs. 2 Crore.

The formula to calculate the interest amount on RD is expressed by–

I = P x n (n+1) r/2400

Where I is the interest, P is the principal amount deposited in the account, n is the time (in months) and r is the rate of interest per annum.

The calculation of interest for Union Bank Recurring Deposit is illustrated in the example given below –

Ms. Roy decides to deposit Rs. 1,000 in a cumulative RD account for a period ranging from January 2019 to November 2019 at an interest rate of 6.75%, according to Union Bank’s applicable interest rates.

Thus, according to the formula, Ms. Roy’s RD account will collect a maturity amount of Rs. 10,315.

From the above instance, it is evident that recurring deposit accounts only provide average returns on investment, at best.

While the amount is sufficient for first-time investors with low disposable income, it might not be enough for seasoned investors looking for high returns on their investments.

For such investors, alternative financial schemes like Mutual Funds, shares and other money market schemes make for much more financially sound investment products. Mutual Funds especially can help to balance the risk-reward ratio efficiently and cater to the needs of investors looking to maximise their returns from investments.

Additionally, they also allow individuals to diversify their investment portfolios and venture into more serious investment opportunities.

Therefore, before choosing an investment option, investors should carefully gauge their requirements and investment goals to ensure that the scheme they choose provides them with maximum benefits.