The annuity deposit scheme allows investors to make a lump sum deposit with a bank or a financial institution and earn regular interest on the principal amount. The interest is paid monthly, quarterly, or annually as per the plan’s time horizon. Unlike fixed deposits (FDs), where investors receive the principal and interest amount at maturity, annuity schemes provide the interest at the selected interval. Learn more about the annuity deposit scheme. 

How Does It Work? 

1. Single Deposit: You only need to deposit a lump sum once to avail of the scheme’s benefits. The returns depend on the amount you deposited and the interest accrued during the invested period.
2. Interest Rate: The bank pays a fixed interest rate on the deposited amount. It is generally higher than normal FDs.
3. Payouts: Unlike fixed deposits, annuity schemes pay the interest in instalments periodically. The interest amount is determined by the amount deposited, interest rate, and tenure of the payout period.
4. Tenure: The tenure could be from a couple of years to a decade, allowing individuals to plan for both short- and long-term financial needs.
5. Maturity: Any interest amount left after maturity will be returned to the investor. 

Also Read: Reverse Mortgage: Encash Your Property In Retirement

Types of Annuity Deposit Schemes in India 

1.  Fixed Annuity Scheme: This is the most common form of annuity deposit. The depositor receives a fixed interest rate, while the annuity remains unchanged throughout the tenure. Hence, the returns are predictable. 
2.  Variable Annuity Scheme: In a variable annuity plan, payments vary depending on the performance of the investments. Variable annuity schemes offer better returns if the investments perform well.
3. Immediate Annuity: In an immediate annuity scheme, the payments start almost immediately after depositing the lump sum. It is ideal for people who need income immediately, such as those who have retired.
4. Deferred Annuity: It is more suited for the long term as payments are deferred.
5. Joint Life Annuity: It allows for joint accounts. The payments are made to both account holders until their death. If one of the account holders dies, the payment will be made to the existing member until death.

Key Considerations 

1. Interest Rate: Different institutions provide different interest rates on annuity deposits. One should compare the banks’ interest rates and terms and conditions before purchasing one. 
2. Lock-in Period: Annuity deposit schemes come with a lock-in. Early withdrawal is allowed for a penalty or reduced returns. Hence, review the conditions for early withdrawals before committing to the scheme.
3. Inflation: Although annuity plans generally provide a cushion against inflation, the interest amount may be insufficient to keep up with the living cost. For instance, if you invest Rs 10 lakh in a fixed annuity deposit scheme with a 6 per cent interest annually for 15 years, you would receive around Rs 17.22 lakh after maturity, including the principal and interest amount.

Finally, annuity deposit schemes can be considered if one intends to earn regular, predictable income. These are safe instruments and can be customized to cater to different financial goals. Understanding these schemes and their benefits will help you select the right plan.