A Recurring Deposit offers a host of benefits to individuals, helping them save up for a rainy day. Ease of use and flexibility have made it a popular savings tool, with both banks and post offices offering RDs. Most individuals who opt for Post Office Recurring Deposits belong to rural or semi-urban areas, where post offices are the preferred instrument compared to banks. One reason for their popularity among the masses is the high interest rate one earns on them, providing a healthy profit on maturity.
The interest rates are revised periodically, with a Post Office RD currently earning an interest of 7.1% per annum.
The interest is compounded every quarter, which ensures that a sum of money multiplies by the time it matures.
Note: The interest rate mentioned above is valid as of January 2018. The interest rate is subject to change and individuals should check the same before opting for a RD.
Post Office Recurring Deposit Tenure
A Recurring Deposit is an instrument which is used as a medium-term investment option. Most investors opt for it in order to meet foreseeable emergencies in the coming years. Currently, individuals who wish to open a Post Office RD need to ensure that their deposits are active for a minimum period of 5 years, i.e.
Minimum Tenure of Post Office RD = 5 years
Individuals who wish to continue with their RD even after this period can do so, for there is a provision which permits an RD to be extended by 5 more years, taking the maximum tenure to 10 years. RDs which have been extended beyond 5 years will continue to earn the interest, which is compounded every quarter, as previously.
Quantum of Deposits
A Recurring Deposit provides individuals an opportunity to save for the future by using the resources available to them. Unlike other deposits, the minimum deposit amount is kept low, ensuring that millions of rural and lower-middle class Indians can afford it. The table below highlights the quantum of deposits permitted in an RD.
|Minimum Deposit||Rs.10 per month|
|Maximum Deposit||No upper limit|
Individuals can increase their deposit in multiples of Rs.5, ensuring that they invest whatever amount is feasible.
An individual opening a Post Office RD is expected to make a total of 60 deposits during the period, i.e. one deposit every month for 5 years. The first deposit should be made when the account is opened, with subsequent monthly deposits to be made before a particular date, depending on the date on which the account was opened.
Individuals who open an account between the 1st and 15th of a particular month are expected to make monthly deposits before the 15th of the next month. Accounts which were opened after the 15th of a month will require subsequent deposits to be made between the 16th and the last day of a particular month. Deposits can be made either by means of a Demand Draft, a Pay Order or a Cheque.
Example: Mr. John opens a Post Office RD account with a post office near his house. He chooses to deposit a sum of Rs.100 every month, opening the account on the 16th of August, 2015. He will now have to make subsequent deposits between the 16th and 30th/31st of the next month [except February, where the last date to deposit money is 28th (29th in case of a leap year)]. The deposits should be made before the last day of a month in order to avoid penalties.
Delayed RD Deposits – Fine and Penalties
There could be instances where an account holder is unable to deposit the monthly amount in his/her RD. As per applicable rules, a maximum of 4 such defaults are permitted, post which the account will become a discontinued account. Such discontinued accounts can be revived within a period of 2 months after the next (5th) default.
The rules also state that a default penalty of 5 paise will be charged for every 5 rupees which is to be deposited in an account. This fine needs to be paid in addition to the missed deposit amount in order for the account to be revived.
Let us see how this works with the example of Mr. John. John misses his payments from December to April, i.e. 5 months. In this case, his account will be viewed as a discontinued one. He now has two months to revive the account by paying all the dues. Now, he has missed 5 payments or Rs.500, and the fine is 5 paise per Rs.5. This makes the overall fine equal to Rs.5, which should be paid by John before June in order to ensure that his account is revived. In case he fails to pay this fine in addition to the deposit within the specified time, his account will become inactive.
Post Office Recurring Deposit Rebate
In order to incentivize people into depositing money in advance, a Post Office RD provides rebates on advance deposits. These rebates might not sound a lot, but can help an individual with meagre resources save a considerable amount for other purposes. The table below highlights the rebate options provided with a Post Office RD.
|Number of Advance Deposits||Quantum of Rebate|
|More than 5, lesser than 11||1 rupee for every Rs.10 deposited|
|More than 11||Rs.4 for every Rs.10 deposited – for 12 deposits Rs.1 for every Rs.10 deposited after 12 deposits|
Note that these advance deposits should be made in a particular month.
Let us continue with the example of Mr. John to see how this rebate system works. John gets an annual bonus for Diwali and decides to use it for advance deposits into his RD account. He chooses to pay for 10 months, paying Rs.1,000 for the same. Now, as per the rebate system, he is entitled to get a rebate of 1 rupee for every Rs.10 deposited. In this case, since he deposits Rs.1,000, he gets a rebate of Rs.100, which he can use for some other purpose.
More you need to know about Recurring Deposit
- Compare Recurring Deposit Interest Rate of Post Office with Other Banks and Institutions
- Check Features and Schemes of Post Office Recurring Deposit