Recurring Deposits (RDs) are a popular savings instrument that help individuals achieve financial goals through systematic investments over a fixed tenure. However, there may be situations where you might want to extend the tenure of your RD to align with new financial objectives or to continue earning interest. In this blog, we’ll explore whether it is possible to extend the tenure of an RD, how it works, and what alternatives are available if an extension is not allowed.
Understanding the RD Tenure
The tenure of an RD is chosen at the time of opening the account, typically ranging from 6 months to 10 years for most banks. For Post Office RDs, the tenure is fixed at 5 years (60 months). Once set, the tenure determines the maturity date of your RD and the total returns you will earn.
Can You Extend the Tenure of Your RD?
The possibility of extending an RD tenure depends on the bank or financial institution’s policies. Here’s how it works:
1. Bank-Offered RDs
Extension Policies:
Many banks allow you to extend the RD tenure upon maturity.
The RD can be extended for a similar or shorter duration as per the bank’s terms.
How It Works:
At maturity, you can request the bank to extend the RD for an additional term.
The interest rate for the extended period will be based on the prevailing RD rates at the time of extension.
Conditions:
Some banks may require you to submit a formal request before the RD maturity date.
Extension is typically allowed only once for an RD.
2. Post Office RD
Extension Policies:
Post Office RDs automatically offer a one-time extension of 5 years upon maturity, provided the account holder agrees to continue.
How It Works:
The extended RD will earn interest at the rate applicable at the time of extension.
You can withdraw the maturity proceeds if you choose not to extend.
Steps to Extend Your RD Tenure
If your bank or post office allows RD extension, here’s how you can proceed:
Contact Your Bank or Post Office:
Visit the branch or use online banking to check if the extension facility is available.
Submit a Request:
Fill out an extension request form or apply through the bank’s digital platform (if available).
Agree to New Terms:
Review the revised tenure, interest rate, and conditions before proceeding.
Confirmation:
Once approved, the RD will continue with the new tenure, and you’ll receive updated details of your account.
What Happens If RD Extension is Not Allowed?
If your RD account does not support tenure extension, you can explore the following alternatives:
1. Renew the RD:
Close the existing RD at maturity and reinvest the maturity proceeds in a new RD.
This allows you to select a new tenure and benefit from updated interest rates.
2. Fixed Deposits (FDs):
If you no longer wish to make monthly deposits, you can convert the maturity proceeds into a Fixed Deposit for a similar or longer tenure.
3. Other Investment Options:
Consider investing the maturity proceeds in instruments like Public Provident Fund (PPF), mutual funds, or government bonds for better alignment with your financial goals.
Advantages of Extending an RD
Continued Growth: Allows your savings to grow further without disruption.
Compounded Returns: Benefit from compounding over the extended period.
Convenience: No need to open a new RD account, saving time and effort.
Limitations of RD Extension
Interest Rate Changes: The interest rate for the extended period may differ from the original rate, depending on market conditions.
Restricted Options: Not all banks or financial institutions allow extensions.
Revised Terms: Extended RDs may have different terms, including penalties for premature closure.
Bank-Specific Policies on RD Extensions
Bank | Extension Policy |
State Bank of India (SBI) | Allows extension at prevailing interest rates with prior request. |
HDFC Bank | Permits tenure extension for similar terms; requires advance notification. |
ICICI Bank | Offers tenure extension, but only upon formal application before maturity. |
Post Office | Automatic 5-year extension upon maturity, with interest applicable at that time. |
When Should You Consider Extending Your RD Tenure?
When You Need More Time to Reach Financial Goals: For example, if you’re saving for a child’s education or wedding and the maturity date doesn’t align with the expense, extending the tenure can help.
To Benefit From Compounding: Extending the tenure allows your deposits to continue earning interest, maximizing your returns.
When Interest Rates Are Favorable: If the prevailing RD rates are attractive, extending the tenure ensures you benefit from them.
Conclusion
Yes, it is possible to extend the tenure of an RD, but it largely depends on the policies of your bank or post office. Extending an RD can be a convenient way to continue disciplined savings while earning compounding returns. However, always check the revised interest rates and terms before proceeding.
If your RD does not support extensions, consider reinvesting the maturity proceeds into a new RD or exploring other investment options that suit your financial goals. Whatever you choose, planning ahead and understanding the terms will ensure your savings work optimally for you.
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