An annuity deposit scheme is an investment plan in which individuals invest a lump sum amount. Subsequently, they receive this principal amount along with interest through periodic monthly payments. This scheme is immensely popular among senior citizens or retirees who invest all or some part of their savings in order to receive a prefixed monthly income.
In this article, we shall be discussing in detail all the important aspects of annuity deposit schemes, like eligibility criteria, benefits, features, etc.
What is an Annuity Deposit Scheme?
This scheme is one of the most popular post-retirement schemes that provide periodic predetermined income over a time period. Annuity deposit schemes are available for different tenures like three years, five years, seven years and ten years. It means that the lump sum money invested by the individual, along with the interest accrued, will be divided into equal monthly installments over the scheme’s tenure.
Generally, the annuity deposit scheme interest rate is similar to fixed deposit rates offered by a bank. Furthermore, senior citizens are eligible to receive a higher rate of interest, which makes this scheme an attractive option to get regular monthly income.
What are the Annuity Deposit Scheme Interest Rates?
The interest rate offered on an annuity deposit scheme is based on the tenure opted by the depositor. Usually, the longer the tenure, the higher the rate of interest.
The installment amount paid to the depositor contains a portion of the principal amount along with the compounded interest earned on the reducing principal amount on a quarterly basis. The entire amount is then discounted to the monthly value for repayment.
Different banks and financial institutions set the interest rates for their annuity deposit schemes based on prevailing interest rates in the market. Make sure to assess the interest rate offered by the bank and the frequency of payment before making any decision.
Features of Annuity Deposit Schemes
Some of the important features of annuity deposit schemes are as follows:
- Generally, there is no maximum limit when it comes to investing money in this scheme.
- Investors can avail this scheme either in online or offline mode. They can either visit any physical premises of their bank and complete the registration process or do the same through the bank’s mobile application or internet banking platform.
- Several banks also allow the option of premature payments to depositors but only up to a certain limit. For example, in SBI, deposits of up to Rs. 15 lakhs can be withdrawn in one go prematurely. But there is a penalty that the bank will levy for premature withdrawal.
- Nomination facility is also available with annuity deposit schemes. Depositors can nominate their close ones, and in case of the death of the depositor during the operation of the scheme, the nominated person will receive future payments.
- Annuity deposit schemes come in different tenures, such as 3 years, 5 years, 7 years and 10 years. However, some banks may also provide shorter or longer tenures.
- Some banks also provide loans or overdraft facilities of up to 75% of the annuity amount.
Components of Annuity Deposit Schemes
There are three primary components associated with annuity deposit schemes – the principal amount, the interest payout and the tenure.
- The principal amount is the lump sum amount deposited by you.
- The amount gets booked for the predetermined tenure, which can range from 3 years to 10 years. This means that you cannot withdraw the amount for the entire tenure.
- For the same tenure, you will receive your investment back in the form of Equated Monthly Installments (EMIs) from the bank. The EMI will comprise a part of the principal amount and the interest earned on the reducing principal amount.
Eligibility Criteria of Annuity Deposit Schemes
One can enjoy the benefits of these investment schemes only if they meet certain eligibility requirements. This investment facility is open for adults as well as minors, and this account can be a single or joint account. However, currently, this facility is not extended to Non-Resident External (NRE) and Non-Resident Ordinary (NRO) account holders. Please note that the eligibility criteria may vary across financial institutions.
Benefits of Annuity Deposit Schemes
Discussed below are some advantages of investing money in an annuity deposit scheme:
● Flexible Tenure
Depositors who put their money into these schemes can benefit from the flexible tenures offered. The investment timeline associated with this scheme ranges from 3 years to 10 years.
● No Maximum Limit
There is no maximum limit on the deposit to be made by investors. This provision is quite helpful for large investors who want to invest their money at low or minimal risk.
● Loan Facility
Depositors can opt for a loan or overdraft facility from the banks for up to a certain percentage of the total deposit amount. In some banks, loan and overdraft facilities are available for as high as 75% of the total deposit amount. This helps depositors to meet sudden financial contingencies.
● Steady Flow of Income
One of the biggest advantages of annuity deposit schemes is it provides a risk-free steady flow of income. It is quite helpful for retirees as this allows them to maintain their standard of living and meet their daily expenses.
● Premature Withdrawal
In case of the untimely demise of the depositor when the scheme is in operation, banks allow their relatives to withdraw the entire balance amount without any penalty or charges.
Comparison of Annuity Deposit Schemes Across Banks
Mentioned below are annuity deposit scheme interest rates 2023 as offered by some of the popular Indian banks:
| Name of the Bank | Annuity deposit scheme interest rates (general) | Annuity deposit scheme interest rates (senior citizens) |
| SBI Annuity Deposit Scheme | 5.10%-5.40% | 5.60%-6.20% |
| HDFC Annuity Deposit Scheme | 5.7-6.4% | 5.7-6.4% |
| Bank of Baroda Monthly Income Plan FD | 6.5% | 7.15%-7.5% |
| ICICI Bank FD Monthly Income Option | 7% | 7.50% |
*The rate of interest is applicable to schemes with tenures ranging from 3 years to 10 years.
*Please note that the interest rates are subject to sudden change at the bank’s discretion.
Summing Up
The annuity deposit scheme is one of the most popular investment schemes, which gives stable income at low risk. Unlike other investment options, annuity schemes offer guaranteed returns in the form of monthly payments. This unique feature helps retirees and people with disabilities maintain a decent standard of living and also protects them from any financial crisis.
