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Post Office RD Interest Rates 2020

The 5-year Post Office Recurring Deposits are the preferred instrument compared to banks. One reason for their popularity among the masses is the high interest rate it offers and enabling them to earn a healthy profit on maturity.

Interest Rate 5.8% p.a. (Compounded quarterly)
Tenure 5 Years
Minimum Deposit Rs. 100 per month
Maxiumum Deposit No Upper Limit (any amount in multiples of Rs.5)
Missed Deposit Penalty Rs.1 for every Rs.100

The interest rates are revised periodically, with a Post Office RD currently earning an interest of 5.8% p.a.. 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 1 April 2020.. 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.100 per month or any amount in multiples of Rs.10
Maximum Deposit No upper limit

Individuals can increase their deposit in multiples of Rs.5, ensuring that they invest whatever amount is feasible.

Deposit Dates

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 cash 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 Rs.1 for every Rs.100 shall be charged. This fine needs to be paid in addition to the missed deposit amount in order for the account to be revived.

Example: Mr. 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.

Post Office Recurring Deposit Rebate Details

Number of Advance Deposits Instalments Quantum of Rebate
6 Rs.10 for every Rs.100
12 Rs.40 for every Rs.100

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.

FAQs on Post Office RD Interest Rates

  • What is the interest rate offered on post office RDs? 
  • The interest payable on post office RDs in 7.2% p.a.  

  • How is RD interest calculated? 
  •  Interest is compounded on a quarterly basis when it comes to recurring deposits. 

  • Which is the better option when it comes to opening an RD, in a bank or post office? 
  • It is best to open an RD account where you can avail high interest rates.  

  • Is RD better than FD? 
  • When you compare FDs and RDs, FDs scores higher than RDs. 

  • Are Post office RDs tax free?  
  • Yes, post office RDs are tax free. 

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