Canara Bank RD – Interest Rate, Eligibility & Tax Implications
Canara Bank, established in 1906 and nationalised in the year 1969, is one of the largest public sector banks under the Government of India. The Canara Bank Recurring Deposit is one of the most popular investment schemes offered by users, which allows individuals to build a significant savings corpus through monthly deposits.
With recurring deposits, individuals can deposit a fixed percentage of their income every month and earn interest at the applicable rate on the deposited amount. This amount then matures on a fixed date in the future after the tenure of the deposit is complete.
The minimum period of investing in an RD is 6 months while the maximum period can extend up to 10 years.
Interest Rate Offered by Canara Bank on their RD –
For Recurring Deposits, the rate of interest applicable is similar to that of bank fixed deposits. For instance, following are the interest rates offered for Canara Bank RD –
- Individuals can avail an interest rate of up to 6.75% with quarterly compounding.
- Individuals above 60 years can avail an additional 0.5% over the regular interest rates.
- Canara Bank accepts minimal deposit amounts as low as Rs. 50 per month.
Following is a table illustrating the interest rates offered by Canara Bank with effect from 9th May 2019.
|Tenure of investment||Interest Rates (in % per annum)||Interest Rates for Senior Citizens (in % per annum)|
|From 180 to 269 days||6.00||6.50|
|From 270 to 363 days||6.20||6.70|
|For 364 days||6.75||7.25|
|From 366 to 727 days||6.70||7.20|
|From 728 to 1091 days||6.70||7.20|
|From 1092 to 1819 days||6.60||7.10|
|From 1820 to 2911 days||6.00||6.50|
|From 2912 to 3640 days||6.00||6.50|
|In case of Canara Sikhar Deposit (444 days)||6.65||7.15|
|In case of Canara Sikhar Deposit (555 days)||6.70||7.20|
These interest rates are applicable only on investments below Rs. 2 Crore.
For instance, if Mr. Xavier, aged 45 years, chooses to invest Rs. 100 per month for a period of 1 year (12 months) in a Canara Bank Recurring Deposit, he/she will earn interest on the deposited amount at the rate of 6.75% per annum.
His maturity amount will then be calculated according to the requisite formula –
A = P*(1+R/N)^(Nt)
Where R is the rate of interest, P is the principal deposited, n gives the tenure in months and t is the applicable tenure.
Using this formula, Mr Xavier’s maturity amount will be Rs. 1,245.
Important Details to Remember to Avail a Canara Bank RD Scheme –
There are a few pertinent details individuals should bear in mind to open an RD account with Canara. These are as follows –
- Eligibility Criteria –
- Indian residents, members of HUF, joint account holders, companies, trusts, firms, sole proprietorships, etc. are eligible to invest in an RD scheme.
- Non-resident Indians are also eligible to open RD account provided they do it through NRE or NRO accounts.
- Minors can open an RD account under the supervision of parents or legal guardians.
- Premature Withdrawal of Funds –
If an individual chooses to liquidate the account before maturity, they will be levied with a premature withdrawal charge of 1% for the accounts opened before or on 4th February 2011.
For accounts opened after the 4th February 2011, premature withdrawal of the deposit will earn 1% less interest on the amount deposited.
- Loan Facility –
Individuals can avail a personal loan against the amount deposited in their Canara Bank RD account and utilise the advance to cover any emergency expenses. The loan amount available to account holders will be equivalent to 90% of the amount available in their RD accounts.
- Delayed Installment Payment Penalty –
- Individuals will be charged a penalty of Re. 1 for missed payment on every Rs. 100, per month, for an RD account of less than 5 years. For RD accounts of more than 2 years, the penalty charged will be Rs. 2 for every Rs. 100 installment.
- If an individual defaults payment for more than 4 installments, the RD account with attract simple interest rate to be paid every month.
- Documents Required for RD Account Application –
To apply for an RD, individuals have to submit the following requisite documents –
- PAN card copy (those without a PAN card have to submit Form 60 or 61.)
- 2 copies of the applicant’s photograph.
- Any identity and address proof according to KYC rules.
- Any other document as required by the bank.
Tax Implications on Canara Bank Recurring Deposit Account
Recurring deposits under any financial institution are liable for taxation under the Income Tax Act, 1961. Under Income Tax rules, the amount deposited with a Canara Bank RD account will be included under the income earned by the respective individual during filing income tax returns.
The interest earned on the deposited amount will be levied with a 10% TDS (if the amount is higher than Rs. 10,000/year.)
Individuals can also claim exemption from the TDS on RD through Form 15H or Form 15G.
However, to submit the form, individuals have to comply with certain conditions. These are –
- They have to be an individual or a member of a Hindu Undivided Family.
- They must be a resident of India.
- They should be less than 60 years of age.
- Individuals can claim this exemption if they have a zero tax liability on their total income.
- If their total interest earned for the respective year is less than the year’s minimum tax exemption limit.
Thus, with the tax exemptions, Canara Bank Recurring Deposit offers individuals a stable savings option that can help them accumulate a corpus over a fixed time.
Is a Recurring Deposit the Best Investment Option?
As far as returns from investment are concerned, there are restrictions on a Canara Bank Recurring Deposit scheme and as such on RDs of any other bank. For those looking to earn higher returns on their investments, Mutual Funds can be much more financially rewarding than a recurring deposit scheme.
Mutual Funds provide the perfect risk-reward balance that helps investors to maximise on their returns and at the same time, protect themselves against the volatility of the money market.
Additionally, investors also get to choose between equity, debt and balanced funds for investments, depending on their risk tolerance and return expectations. Thus, for anyone looking for investment options with high returns, Mutual Funds can make for a lucrative alternative.