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Post Office Recurring Deposit

Post Offices serve an important role in the functioning of the economy in a country. Apart from their primary functions of distributing mail throughout the world, a post office also offers various financial services to its customers. These financial services serve as a saving scheme for the customers and are free of market risks.

Among the various savings schemes offered, the Post Office Recurring Deposit is among the preferred investment options by customers apart from regular or traditional saving schemes such as fixed deposits and other long-term or short-term schemes.

Post Office RD Rates

How to Calculate Interest on the Post Office RD
Regular Monthly Deposit Rs.100 (Minimum)
Tenure 5 years
Interest rate 5.8% p.a.
Total savings Depends on the investment amount
Total interest earned Depends on the investment amount

What is a Post Office Recurring Deposit Scheme?

There is a total of 9 savings schemes which are backed by the Government of India which includes the Post Office Savings Scheme. The Post Office Recurring Deposit is a mid-term savings scheme where depositors are required to park their investments for a minimum of 5 years.

Since the recurring deposit does not depend on the market, it is deemed risk-free and caters to investors with a lower risk appetite, as well as, investors who are depositing their money in a scheme for the first time. The recurring deposit scheme requires a fixed sum to be deposited into the account at regular intervals for which interest is accrued on them and compounded quarterly.

For the investors who like security on their investments and wish to earn a steady sum of money as interest, the Post Office RD would be an ideal investment. Moreover, this scheme would be also beneficial for the people to earn a fixed sum of money and wish to generate over time and earn a fixed income.

Eligibility Criteria for the Post Office Recurring Deposit

The primary eligibility criteria to open an RD account in a Post Office would be the following:

  • Applicant must be an Indian national and over 18 years old.
  • Minors who are above the age of 10 years.
  • Parents/guardians of a minor to open an account on behalf of the latter.

For the minors, the RD account will be held jointly by the guardians or parents and for the applicants above 18 years old, the account will be under the name of the primary applicant.

Features of the Post Office Recurring Deposit

The RD offered by the Post Office offers a wide range of benefits and features. The features of a Post Office RD are the following:

  • Limited Restrictions: To open an RD account, investors can deposit as low as Rs.10 per month and does not have any upper limit. The applicants can deposit their money while opening their RD account in a post office through cash or cheque.
  • Operations: A Post Office RD can be operated in a joint manner if the RD has been opened under the name of a minor. Two individuals can operate the account. If a person who is above the age of 18 years opens the account, the account can be operated by the primary applicant singly or jointly as well.
  • Interest: This RD scheme offers a fixed rate of interest and is competitive in the market. The interest accrued is compounded quarterly and helps investors generate earnings on a frequent basis.
  • Nomination: The scheme allows applicants to choose a nominee to receive the payout in case of death. Investors can choose the facility of nomination during the opening of the account in the post office. They can also do so after the account is opened as well.
  • Transfer of funds: RD account holders can transfer funds from their RD to their savings account easily and they can open any number of accounts in the several post offices in the country.
  • Facility of Rebate: Individuals can also opt for the rebate facility on the deposits given in advance but the facility is limited to 6 installments only.
  • Withdrawal: The Post Office RD allows applicants to withdraw their funds from the account with ease. Account-holders can withdraw up to 50% of their deposit balance a year after the account has been opened.

Rate of Interest on Post Office Recurring Deposit

An interest rate of 5.8% is offered on the Post Office Recurring Deposit which makes it among the top investment options for people.

The compound interest is calculated each quarter and is one of the top advantages of the scheme. Individuals can have a strong corpus at their disposal during the time of maturity and would assist in financial stability and creation of wealth as well for the long run.

How to Calculate Interest on the Post Office RD Account?

The interest on the Post Office Recurring Deposit is offered based on the compounding principle. The formula for compound interest mentioned below is used to calculate the interest:

A= P x (1+R/N) ^ (Nt)

A = Maturing Amount

P = Recurring Amount

N= Number of times the interest has been compounded

T= Tenure

R= Rate of interest

Taxation on the Post Office RD Account

The Post Office RD account is exempted from tax deductions under Section 80C of the Income Tax Act and individuals can claim up to Rs.1.5 lakh per annum as tax exemption under this section. However, the interest which is generated through the Post Office RD will be subjected to tax cuts. The account holders will be required to pay tax on the interest amount as per the income tax slab.

Apart from this, an interest which exceeds Rs.10,000 will be liable for a TDS deduction and individuals holding an active PAN card will be required to pay TDS at the rate of 10% and those without an active PAN card will have to pay TDS at the rate of 20%.

Rebate Facility on Post Office Recurring Deposit

A rebate is a discount which is offered to the account holders of the Post Office RD Scheme to promote premature or advance deposits to their account.

For example, if a person is depositing Rs.1,000 for a total tenure of 7 months as an advance in his Post Office RD account, under this rebate system, the person will be entitled to get a rebate of Re.1 for every Rs.10 which has been deposited in advance. Hence, for the total sum of Rs.1,000, he will get a rebate of Rs.100.

For the Post Office RD Scheme, account holders can avail the rebate system on their deposits which were invested at least 6 months in advance. The rebate will be only made available on a deposit which is equal to the total value of 6 instalments.

In the case of delay in deposits, the account holder will be liable to pay the penalties as specified by the bank. The RD account holders will be allowed a maximum of 4 defaults on their payments, after which their account will be discontinued.

As a penalty, 5 paise on every Rs.5 will be accrued and the penalty along with the missed payments must be deposited into their RD account. The Post Office RD allows account holders to revive their account by making their payments with 2 months after the 5th default.

Bank RD vs Post Office RD 

Recurring Deposit (RD) is a brilliant investment tool if you are looking to maximise your savings without having to take too many risks. Various banks in India offer their customers the option to open an RD account and deposit a certain amount on a monthly basis to earn interest on it. If you do not wish to open an RD account with a bank in India, you can do so with the Post Office in India. However, there are certain difference in the benefits offered by banks in India when compared to the ones offered by Post Office if you are looking to open an RD account. 

We will have a look at the difference between opening an RD account with a bank and post office in India. 

  • The interest rates offered by lenders in India may vary. The rate of interest offered may go up to 7% p.a. However, if you open an RD account with Post Office, then you will earn an interest of 5.8% p.a. 
  • You can choose your tenure for investing in an RD account for up to ten years if you open one with a bank. However, in case of Post Office, the maximum investment tenure on offer is up to five years. 
  • Once your tenure is over, you can renew your RD account to continue investing. If you have opened an RD account with the bank and wish to renew, then you can choose your tenure as per your needs. However, in case of Post Office, if you wish to renew, then the tenure will have to be five years. 
  • You can prematurely withdraw your investment amount. While for Post Office you can withdraw only 50% of the deposit amount, for banks, you can withdraw up to 95% of the amount. 
  • Nomination facility is available for both banks and post office. 
  • The rate of interest is calculated on a quarterly basis for both banks and post office. 
  • TDS at the rate of 10% will be deducted if the RD amount is more than Rs.10,000 in a year regardless of whether you have an RD account with the bank or post office. You will have to submit Form 15G or Form 15H to avoid TDS. 

Premature Withdrawal of Post Office RD Account

The facility of premature withdrawal of the RD account is allowed for the account holders in case of an emergency or for urgent expenses. However, premature withdrawal is allowed after 1 year from the date of opening of the account and 50% of the funds can be withdrawn. With this, an interest of 1% will be applied on the amount withdrawn.

A Post Office Recurring Deposit is a viable option for the people who are new to investing and wish to accumulate wealth over a period of time, without indulging in market risks. Moreover, since the Post Office RD is backed by the government, the funds deposited, will generate wealth at a steady rate of interest and will not be subjected to the trends of the market.

Post Office Recurring Deposit FAQs

  1. How much can I invest in a Post Office recurring deposit?

    For opening a recurring deposit account with the Post Office, the minimum amount is Rs.100 per amount or any amount in multiples of Rs.10. There is no cap on the maximum amount that you can invest.

  2. Are Post office RDs tax-free?

    Yes, they are tax free given that it has a tenure of 5 years.

  3. Is the facility of premature withdrawal available on Post Office recurring deposits?

    The facility of premature withdrawal is available. However, premature withdrawal is allowed after 3 years from the date of opening the account

  4. Can an RD account be opened in the name of a minor at the post office?

    Yes, an RD account in the name of a minor can be opened. The minor should be above 10 years of age.

  5. Does Post office offer any kind of rebate?

    If you make advance deposit of at least 6 months, post office shall offer you a rebate. Rebate will be paid for denomination of Rs.100.

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