Post Office Recurring Deposit (RD): Features, Benefits & Interest Rates

A recurring deposit scheme offered by the Post Office is a systematic savings scheme that allows you to invest in instalments and save affordably. This scheme intends to encourage the habit of small savings so that investors can secure their future needs.

Post office RD, like fixed deposits, offer guaranteed interest rates. Even if the market suffers volatility and fluctuations, the interest rate on your recurring deposits is guaranteed throughout the chosen tenure. For this reason, these deposits are quite popular among risk-averse investors who want to invest smaller portions regularly rather than a lump sum amount.

Eligibility For A Post-Office RD Account

A post office recurring deposit account called the National Savings Recurring Deposit Account, can be opened by the following –

• An individual aged 18 years or above
• Up to three individuals on a joint account basis
• A guardian on a minor’s behalf
• A guardian on behalf of an individual who is not of a sound mind
• Minors aged ten years and above in their name

You will also need an Aadhar card and your PAN card.

Post Office RD Interest Rates 2023-24

The Government of India fixes the interest rates on a post office RD account. From 1 April 2023, the applicable interest rate is 6.2% per annum. The interest is compounded quarterly, i.e., four times a year.

How to Calculate Post Office RD Return?

You can mathematically calculate the returns from a post office RD using a simple formula that will tell you the monthly interest earned. You can calculate the monthly amounts for each month throughout the deposit tenure.  You can add the monthly amounts until the end of the tenure to arrive at a total amount. Once you subtract the total instalments paid out of the total amount, you’ll get the overall return of your RD.

Alternatively, many online calculators can help you calculate the return instantly without manual effort. You simply have to enter the instalment amount, the tenure, the compounding frequency and the interest rate, and the calculator will prompt your aggregate amount and returns instantly.

Here’s the formula to calculate the returns that you can earn from the post office RD account –

M =R [(1+i)n – 1]/1-(1+i)(-1/3) 

M = Total value of maturity

R = Amount of monthly deposits

n = Time period in years

i = interest rate offered

Let us understand this with an example. Suppose Ram wants to deposit Rs 10,000 every month for 5 years in the post office RD that offers a 5.8% rate of interest. Here,

R = 10000

n = 5

i = 5.8

Putting these values in the formula, we get:

M = 10000[(1+5.8)5 – 1]/1-(1+5.8)(-1/3) 

M = Rs 6,96,967

Hence, Ram will get a maturity amount of Rs 6,96,967 on his total deposit of Rs 6,00,000, which means an interest of Rs 96,967.

Features of Post Office Office Scheme

The salient features of the post office recurring deposit scheme are as follows –

Minimum Deposit for Account Opening

You can open multiple accounts in your name without restrictions. The minimum deposit amount is Rs.100 or any amount in multiples of 10. The subsequent deposit to the RD account must also be of the same denomination. There is no maximum limit on the deposit amount.

Deposit Date

Subsequent deposits shall be made up to the 15th day of each month, if the account is opened before the 16th day of a calendar month. If the account is opened between the 16th day and the last working day of a calendar month, subsequent deposits shall be made up to the last working day of the mon

Defaulting on the deposit

If you miss any instalment, the post office levies a default fine of Rs.1 per Rs.100 (proportionate amount for other denomination) deposit.

Discontinuation and revival

If you miss the instalment deposit regularly for four times, your account will be discontinued. You can revive a discontinued account within two months of the fourth default. However, if you do not revive the account, you will not be allowed to make any more investments. Your account will be discontinued completely, and the balance will be paid. You would have to apply to withdraw the balance.

Extension of maturity

If you do not make four defaults, you can extend the maturity date. You can extend the maturity by the number of months in which you defaulted. Then you can deposit the missed instalments during the extended months. Besides defaults, you can extend the maturity tenure by five years. You can make additional deposits or avail of the extension without any deposits. You can also close the account at any time during the extended period.

Advance deposits

You can make advance deposits on the account either when opening the account or anytime after that. The advance deposit can be made for up to five years. If you make advance deposits for six months or more, you earn a rebate on the deposit. The rebate is Rs.10 per Rs.100 deposit for paying six months’ advance instalments. If you pay an advance for 12 months, the rebate would be Rs.40 per Rs.100 deposit.

Loan facility

If you have deposited 12 instalments and your account is continued for a year, you can avail of a loan against your deposits. The loan is available for up to 50% of your account balance. However, it would attract an interest rate of 2% over the RD interest, i.e., 8.2% currently. You can repay the loan in a lump sum or in instalments. If you do not repay till maturity, the loan and its interest will be deducted from the maturity amount.

Maturity of  Post Office RD Scheme

The maturity of the National Saving Recurring Deposit is 5 years from the date of the first deposit. You can extend the maturity by another 5 years. However, the interest rate will be the rate at which the RD account was opened. In such a case, one can retain the account without making any fresh deposit.

Premature Withdrawal of Post Office RD

The post office recurring deposit scheme allows premature withdrawals three years after opening the account by submitting an application in Form-2 to the nearest Post Office of India branch. If you withdraw prematurely, you will get the interest rate of a savings bank account instead of 6.2%. Furthermore, premature closure is not allowed during the tenure you have paid advance instalments. In that case, you must continue the account until you have paid the instalments and then opt for closure.

Documents Required for PORD

Identity Proofs:

• Aadhaar card
• Passport
• PAN (permanent account number) card
• Voter’s identity card
• Driving licence

Address Proofs:

• Aadhaar card
• Passport
• Driving licence
• Voter’s identity card
• Ration card

Additional Documents:

• An account-opening form
• Two passport size photographs
• Declaration in Form 60 or 61 as per the Income Tax Act, 1961 (if needed)
• Carry original identity proof for verification at the time of account opening.

Steps to Open Post-Office RD Online and Offline

You can open a post office recurring deposit account online or offline. The process is as follows –

Post Office RD Account Opening Online

Download the India Post Mobile Banking application on your smartphone to open an account online. Register on the application and follow the steps below – –

Post Office Recurring Deposit Offline Account Set up

To open the account offline, visit your nearest post office and fill out the account opening form. Submit your KYC documents like identity, age and address proofs with recent coloured photographs. Also, pay the deposit amount and submit the form. The post office will process your application and open the account.

Comparison of Bank RD & Post Office RD

There are a few key differences between how bank RDs operate in contrast to Post-Office RD. Let’s take a look at some of them.

Duration Stretch: Unlike banks where the RD can be stretched out for a variety of durations – from one year all the way up to ten years – the post office has a fixed play of five years for their RD term.

Liquidity feature: If you need some early cash, you can dip into 50% of what’s left in your post office RD. And if you want, you can pay back that amount anytime during the account’s life, with a little interest added. On the flip side, banks let you borrow up to a whopping 95% of your RD stash.

Interest rates: While banks don’t refresh their RD rates all that often, the post office likes to shake things up by reviewing their RD interest rates every three months.

Extending the RD term: Banks are flexible, letting you renew again and again. But the post office is firm with their five-year rule. No more, no less.

Final Thoughts

A post office recurring deposit scheme allows you to save regularly and create a reasonable corpus with guaranteed returns. You can save for five years, extend the tenure if needed, and create funds for your financial goals. It would be best if you understand the various aspects of the saving scheme and then invest in it if it aligns with your financial needs and goals.

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