Indian Postal services are operated by Government of India. They provide small savings banking and financial services, including Post-Office Recurring Deposit. It is a scheme offered by the department of post and backed by the government of India on which fixed interest is paid.
A Post Office Recurring Deposit offers many benefits to individuals. RD’s help them save for emergencies. Ease of use and flexibility has made it a popular savings tool. Most individuals choose post office recurring deposits belong to rural or semi-urban areas. Here, 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 Post Office Recurring Deposit Account works on the same principle as that of the recurring deposit account in a bank. The investor can deposit a fixed sum of money on a monthly basis.
This scheme is backed by the Government of India. Thus, the capital in this scheme is completely protected, with guaranteed returns.
This scheme is not inflation protected. Whenever inflation is above the guaranteed interest rate, the scheme earns no real returns. But when the inflation rate is below the guaranteed rate, it manages a positive real return.
Post Office Schemes have no online access as of yet. This means that no online option available to open and manage accounts.
Though it offers no tax incentives, it is a preferred instrument amongst small savers for the government backing that it offers.
No age limit is mentioned for a person opening an account in post office recurring deposit. An account can be also opened by a minor. A minor of 10 years and above age can open and operate the account.
Post office recurring deposit has some investment conditions.
Customers can open an account with a minimum of Rs 10/- per month or any amount in multiples of Rs 5/- thereof. There is no maximum limit on the amount one may wish to invest each month.
Interest rates on recurring deposits are fixed when you open the deposit. Post office recurring deposits enable investors to earn interest on their extra funds.
This RD scheme is currently offering an interest rate of 6.90% per annum which is compounded quarterly.
Tenure of Deposit
Tenure of deposit is the time duration for which an investor deposits/invests his/her funds. The funds remain locked-in for this tenure (early withdrawal subject to conditions).
A post office recurring deposit is available for a minimum period of 5 years.
There is a facility of continuing the PORD for a maximum period of five years on completion of the first five-year tenure. This takes the maximum tenure to 10 years. Recurring deposits whose tenure is extended for 5 years will continue to earn the interest, in the same way as before.
Post office recurring deposit provides nomination facility. Nomination is a facility that enables deposit account holders to nominate an individual, who can claim the proceeds of the deposit accounts or contents of the safe deposit lockers, post the death of the original depositors.
There can be only one nominee per deposit. But, different deposits can be nominated in favour of different individuals.
Customers can avail the Nomination facility at the time of opening and also after opening of account. You can nominate at your ease.
You are allowed to close the Post Office Recurring Deposit (RD) at any point of time after 3 years of completion. But you will not receive the RD interest rate on such premature closure account. Instead, post office will pay you the savings account interest rate.
In cases of advance deposit in RD, premature closure is not allowed until the period for which the advance deposit made.
Following are the important points relating to premature withdrawal of a recurring deposit:-
- Premature withdrawal is allowed only after a completion of a minimum of 1 year of the account.
- A minimum of 12 monthly deposits should have been made into the account before premature withdrawal is allowed.
- Only one withdrawal is permitted if the above conditions are satisfied. The amount of such withdrawal should not be more than 50% of the balance in the account.
- Withdrawal amount can be in multiples of Rs.5.
- Amount withdrawn should be repaid, either as a single lump sum amount or through EMIs.
- Interest should be paid by the individual on the amount withdrawn.
- Amount withdrawn needs to be repaid, with interest, before the RD matures.