While those looking for post-retirement annuity (pension) income know about annuity plans offered by LIC and other pension fund managers, very few know that there are banks offering annuity deposit scheme as well. State Bank of India SBI also offers an annuity product named – SBI Annuity Deposit Scheme (ADS) in India (2023) for regular monthly income.
If you too are curious to know how to get monthly income by making one-time single deposit into SBI Annuity Deposit Scheme or SBI ADS, then you will find this article on features and benefits of SBI Annuity Deposit Scheme Review useful.
We will also see how to arrive at SBI Annuity Deposit Scheme Monthly Income using Annuity Deposit interest rates and using SBI Annuity Scheme Calculator 2023.
What is SBI Annuity Deposit Scheme (2023)?
SBI Annuity Deposit Scheme or SBI-ADS is an annuity deposit scheme by SBI, which is the largest bank of India as well is part of RBI’s Safest Indian Banks list. In this scheme, once the customer deposits a lump sum amount, they start getting a fixed income every month.
But unlike annuity income or FD interest income, the monthly income from SBI Annuity Deposit is paid in the form of equated monthly instalments (EMIs). And this EMI comprises a part of the principal amount as well as interest on the reducing principal amount, compounded at quarterly rests and discounted to the monthly value. So, the initial deposit made by the customer is returned to them in the form of a monthly installment, along with interest.
If you look at it in another way, its like you are giving loan to SBI and it is paying you monthly EMIs. And this is what makes SBI ADS unique. As most regular interest/annuity products make only interest payments regularly and refund the original principal amount back after completion of the tenure. However, SBI ADS not only offers regular interest payment but a part of the principal is also returned back each month (similar to loan EMIs approach – read more about how loan EMI is calculated).
So this scheme gives monthly payouts which is much higher than the current prevailing FD interest rates offer.
All resident Indians (including minors) can invest in this deposit scheme. The NRIs having NRO & NRE accounts can not avail this deposit facility.
Reference – Scheme details on SBI website (link)
SBI Annuity Deposit Monthly Income Calculation (2023)
Let’s see how this works by comparing it with other interest-based product.
Suppose you have Rs 50 lakh and want to invest this money to receive a regular income for the next 10 years.
Scenario 1:
If you put money in a bank FD, i.e. you put Rs 50 lakh Bank FD for Monthly Interest income generation, then you may get 7% per annum. If you choose the monthly interest payout option in a non-cumulative fixed deposit (FD), then you will get Rs 29,167 per month in interest income for the next 10 years. After 10 years, the bank will give back your original Rs 50 lakh amount as principal repayment. So in total, you get Rs 35 lakh in interest income on Rs 50 lakh principal in this option.
Scenario 2:
If you instead put this Rs 50 lakh in SBI Annuity Deposit Scheme for 10 years (at the same 7% as well), then here is what happens here differently. From 1st month itself, you start getting Rs 58,054 per month as monthly income. And this continues for 10 year (or 120 months). Why is SBI Annuity Deposit giving you higher interest income even though it is offering same 7% interest rate? It is because it not just pays interest income but also starts returning back a part of the principal each month. So in the first month payout of Rs 58,054, the interest part is Rs 29,167 (note it is same as that in scenario 1). But additionally, it offers Rs 28,888 as part principal repayment. And that is why it has a higher payout. But wait, if SBI ADS is repaying the principal back gradually, then what happens after 10 year? At the 10th year, entire Rs 50 lakh has already been repaid back. So there is no extra maturity payout in this case. You have already received monthly repayments that comprise of the principal amount as well as the interest accrued on the diminishing principal amount held with the bank. In total, you get an interest of Rs 19.67 lakh and Principal repayment of Rs 50 lakh.
Here is how the monthly income schedule of SBI Annuity Deposit Scheme looks like:
If you compare both the scenarios, you will see that you get a much higher monthly income payout in case of SBI Annuity Deposit versus say a Bank FD or Annuity giving same interest rates. But while this increases the monthly cashflow, it also to be noted that there is no return of principal on maturity in SBI Annuity Deposit.
You can use the below linked free-to-download calculator to find out monthly income from SBI Annuity Deposit
SBI Annuity Deposit Scheme Calculator (2023) | Download Excel
Also, as the regular payout in SBI ADS also has a part of principal refund, the effective monthly payout in this scheme is a lot higher than what the interest rate would suggest.
Now that you have understood how monthly income is calculated for SBI Annuity Deposit Scheme, let’s move on and discuss a few other points.
What is SBI Annuity Deposit Interest Rate? The interest rate applicable to SBI Annuity Deposit Scheme is the same as SBI Fixed Deposit Interest Rates of the same tenor. Here is the latest (Jun 2023) SBI Bank FD Rates (via link)
What is the minimum and maximum period of deposit? The Annuity deposit is available for the tenors of 3 years (or 36 months), 5 years (or 60 months), 7 years (or 84 months) and 10 years (or 120 months).
What is the minimum and maximum limit for Annuity Deposit? The Minimum deposit amount for Annuity deposit is based on minimum monthly annuity Rs 1000 for the relevant period. i.e., for 3 years, so the minimum deposit amount will be Rs 36,000. There is no maximum amount limit.
What will be the maturity amount in Annuity Deposit? This is very very important to understand. In SBI Annuity deposit, as part of the principal and interest on reducing principal is paid in installments over a period of time hence at maturity date, the maturity amount remains 0 (Zero). That is, nothing is paid back on maturity.
Is SBI Annuity deposit is subject to TDS? The interest part of the monthly income payout is subject to TDS for SBI Annuity Deposit. There are no tax benefits for investing in SBI Annuity Deposit and the payout interest income is taxable as per the applicable income tax slabs of the depositor.
Can I make premature withdrawal in SBI ADS? Under SBI ADS, premature withdrawal is allowed for deposits up to Rs 15 lakh. However, this withdrawal also comes with a penalty, which is similar to what is applicable on term deposits. In case of death of the depositor, premature payment is allowed without any limit. The annuitant can also get an overdraft or a loan up to 75% of the balance.
How SBI Annuity deposit is different from Fixed deposit account? In Fixed Deposit account customer makes one time Deposit and receives the maturity amount at maturity date which comprises principal and interest in case of STDR and principal only in case of TDR as interest is paid at periodic interval. Annuity Deposit accepts one time Deposit and amount is repaid to the customer over the tenor selected by the depositor, along with interest, in equated monthly installments.
You can read more FAQs (Frequently Asked Questions) about SBI Annuity Deposit Scheme here on SBI website.
Should You Invest in SBI Annuity Deposit Scheme (2023)?
Annuity plans have a very specific use case and that is to provide regular, reliable and stable income to the annuity buyer. And most pension schemes provide the option for lifelong annuity payment at a predefined interest rate.
Related Readings – LIC Immediate Annuity Jeevan Akshay Review and another immeidate annuity product named LIC Saral Pension Plan
But SBI Annuity Deposit is not a pure annuity product. The scheme will last only for 10 years (or opted tenor) in which the entire principal and interest is paid back to the depositor. There is no maturity payment at the end of the tenor.
So while the monthly income payout is high in this product, it does not provide lifelong annuity income. And that is a big issue with this product.
Hopefully, you would have found this Review of SBI Annuity Deposit Scheme (SBI ADS) useful and the scheme details and benefits would be clear by now in India 2023. You can use this scheme generate regular annuity monthly income throughout the deposit tenor (and not full life) and you also don’t get back anything on maturity. So instead of getting excited at the higher monthly income payout, please make sure you understand and assess the product suitability first.