SBI's Har Ghar Lakhpati RD scheme unboxed: Should you invest or pass?

The SBI's Har Ghar Lakhpati RD scheme has a minimum lock-in period of 3 years.

The State Bank of India (SBI) has introduced  a ‘Har Ghar Lakhpati’ (lakhpati in every home) recurring deposit scheme. The stated objective of this investment scheme is to help individuals accumulate a corpus of Rs 1 lakh or more through small monthly savings over three to ten years.

Interest rates of 6.5-7.25 percent 

Individuals, including minors aged 10 and above (who can sign legibly), are eligible to open an account.

For people under age 60, the scheme offers interest rates of 6.75 percent for tenures of three and four years, and 6.50 percent for tenures of five to 10 years. For those above 60, it offers 7.25 percent for three and four years, and 7 percent for years five to 10. The bank's interest rates for other RD schemes remain unchanged for these tenures.

“SBI's interest rates for RDs are on par with those of other public sector banks, but lag behind the rates offered by the larger private sector banks, like HDFC and ICICI, by around 0.5 percent," says Vikas Jain, Co-Founder of the fintech app Multipl. HDFC Bank offers 7 percent interest for those under 60, and 7.5 percent for senior citizens (three to 10 years). ICICI Bank offers 7 percent (three to five years) and 6.9 percent (five to 10 years) for those under 60, while for senior citizens it offers 7.5 percent (three to five years) and 7.4 percent for tenors of five to 10 years.

Like fixed deposits (FDs), the interest earned on recurring deposits (RDs) is added to the investor’s income and taxed per her applicable slab rate. “If the total interest earned exceeds Rs 40,000 per year (Rs 50,000 for senior citizens), 10 percent TDS (tax deducted at source) is applicable,” says Nehal Mota, Co-Founder & CEO, Finnovate, a financial planning platform.

If six consecutive instalments are missed, the RD account will be closed prematurely, and the balance  transferred to your savings account.

SBI’s Har Ghar Lakhpati RD Scheme

Penalties and charges

The scheme has a minimum lock-in period of three years. For premature withdrawals, penalties will come into play — 0.50 percent for amounts up to Rs 5 lakh, and 1 percent above that. Additionally, the interest rate will be lower by 0.5 to 1 percent. No interest will be paid on deposits held for less than seven days. At HDFC Bank, there are no penalties for premature withdrawal from an RD scheme.

Late monthly deposits will also attract penalties. For tenures up to five years, the penalty is Rs 1.50 per Rs 100 per month, and Rs 2 per Rs 100 per month for longer tenures.

Also read: Why individuals must invest long-term, avoid day trading & derivatives

What works?

The scheme ensures capital protection and guaranteed returns, making it a secure investment option. “It also promotes disciplined savings with flexible tenures, allowing investors to choose a period that suits their financial goals,” says Mota.

What doesn’t

If wealth creation over the long-term is your goal to meet needs such as children’s education or retirement, equity is the ideal asset class, not fixed income. “Like FDs, here too the returns are lower compared to equity-linked investments, which could impact long-term growth,” adds Mota. Even among fixed income options, you can consider more remunerative products, say financial advisors.

"Investors can consider debt funds like liquid or ultra-short funds, which offer similar returns without penalties for missed instalments or premature withdrawals, except for a short initial period," advises Jain.

Also read | After raising Rs 80,000 cr in 2024, will active thematic and sectoral NFOs take a breather?

Should you invest?

According to Priyank Shah, Co-Founder and CEO of The Financialist, a financial planning firm, the scheme is ideal for conservative investors and senior citizens as it provides guaranteed returns and capital protection. By promoting disciplined saving, the scheme helps create a financial safety net. However, investors should assess the risk of inflation eating into the returns.