Saving money is crucial for securing your future and meeting your financial needs after retirement or in times of low income. Annuity Deposit Schemes are a good way to get regular income from your savings. Many banks in India, including the State Bank of India (SBI), offer Annuity Deposit Schemes to help individuals receive fixed monthly income from a lump sum deposit. This article explains what an Annuity Deposit Scheme is, its interest rates, eligibility, and key features.
What is an Annuity Deposit Scheme?
An Annuity Deposit Scheme is a type of fixed deposit scheme where you deposit a lump sum amount once, and the bank pays you a fixed monthly amount that includes both the interest and part of the principal amount. The payments continue until the term of the annuity is complete. It is like creating a regular monthly pension from your one-time deposit.
In simple words, you deposit a certain amount, and the bank pays you back in equal monthly installments, which give you a steady income.
Who Should Choose an Annuity Deposit Scheme?
This scheme is ideal for:
- Retired individuals are looking for regular monthly income.
- People with surplus funds who want fixed monthly payments.
- Anyone who wants to plan for future expenses like children’s education, marriage, or healthcare.
Key Features of Annuity Deposit Scheme
- One-Time Deposit: You need to make a single lump sum deposit at the start of the scheme. The bank then divides the total amount into monthly payments over the chosen period.
- Fixed Monthly Installments: You receive a fixed monthly payment, which includes interest and a part of your principal amount.
- Flexible Tenure: Most banks offer tenure options of 36 months, 60 months, 84 months, and 120 months (3, 5, 7, and 10 years).
- Minimum Deposit Amount: The minimum deposit amount varies from bank to bank. For example, SBI requires a minimum amount that results in a monthly annuity of at least Rs. 1,000.
- No Additional Deposits: You cannot add more money once the annuity deposit is created.
- Premature Withdrawal: Premature withdrawal is usually allowed only in case of the death of the depositor. Otherwise, you cannot withdraw the money before the maturity period.
- Nomination Facility: Banks allow you to nominate a family member or other person, who will receive the balance amount in case of your death.
- Loan Facility: Some banks offer loans against the balance amount in the annuity account.
Interest Rates of Annuity Deposit Schemes 2025
The interest rates on annuity deposits are similar to the regular fixed deposit rates offered by the bank at the time of creating the annuity. The interest rate depends on the tenure you choose. For example, if you choose a 5-year annuity, the interest rate applicable will be the bank’s fixed deposit rate for 5 years on the date of the deposit.
Interest rates vary from bank to bank. For instance, as of mid-2025:
- SBI offers around 6.50% per annum for senior citizens and 6.00% per annum for regular customers on a 5-year annuity deposit.
- Private banks may offer slightly higher or lower rates depending on market conditions.
The exact rate can be checked on the bank’s website or by visiting the nearest branch.
How is the Monthly Instalment Calculated?
The bank calculates the monthly instalment by dividing the deposited amount into equal monthly payments, considering both the interest to be paid and the principal to be returned over the chosen tenure.
For example:
- You deposit Rs. 5,00,000 in an annuity scheme for 5 years at an interest rate of 6% per annum.
- The bank calculates a fixed monthly instalment amount that includes interest earned on the remaining principal each month and part of the principal itself.
The instalment amount remains the same each month until the end of the tenure.
Eligibility Criteria
The Annuity Deposit Scheme is open to:
- Resident individuals.
- Senior citizens.
- Non-Resident Indians (NRIs) in some banks (subject to rules).
- Joint account holders.
Usually, there is no upper age limit for opening an annuity deposit. However, minors can open the account through a guardian.
Documents Required to Apply for the Annuity Deposit Scheme
To open an annuity deposit account, you need to submit:
- Account opening form (provided by the bank).
- Identity proof (Aadhaar card, PAN card, passport, driving license, or voter ID).
- Address proof.
- Recent passport-sized photographs.
- Existing bank account details (if required by the bank).
Benefits of Annuity Deposit Scheme
- Regular Monthly Income: Ideal for retired people or anyone needing a regular income.
- Assured Returns: Since the interest rate is fixed at the time of deposit, you are protected from market fluctuations.
- Safe Investment: Annuity deposits with scheduled commercial banks are considered safe.
- Simple Process: Easy to open and manage.
- Flexible Options: Select the tenure that best suits your needs.
- Tax Benefits: The principal amount is not tax-deductible. However, the interest you earn is taxable as per your income tax slab.
Taxation on Annuity Deposits
The monthly instalments you receive consist of principal and interest components. Only the interest portion is taxable under “Income from Other Sources” in your Income Tax Return (ITR). The principal part is not taxable since it is your own money being returned to you.
Banks also deduct Tax Deducted at Source (TDS) if the annual interest earned exceeds the threshold limit, which is set by the Income Tax Department (currently Rs. 40,000 for individuals below 60 years and Rs. 50,000 for senior citizens).
How to Open an Annuity Deposit Scheme?
You can open an annuity deposit account by visiting your bank branch and filling out the required form. Many banks also allow you to open the scheme online through internet banking or mobile banking apps.
Steps to open:
- Choose the bank offering annuity deposits.
- Decide on the tenure and amount you want to deposit.
- Fill out the application form and submit KYC documents.
- Pay the lump sum amount.
- The bank will start the monthly instalments as per the selected tenure.
Points to Remember
- Choose the tenure carefully according to your income needs and age.
- Compare interest rates of different banks to get the best return.
- Remember that the instalments are fixed and cannot be changed once the deposit is made.
- Premature withdrawal is generally not allowed except in case of death.
- Understand the tax implications before investing.
Conclusion
Annuity Deposit Schemes are a suitable way to ensure a regular monthly income from your savings. They offer fixed returns, safety, and flexibility in tenure, making them an attractive option for the required persons, especially for retirees and individuals looking for predictable income. Before investing, it is wise to compare interest rates, understand the features, and plan according to your financial goals.
