- 1 Post Office RD Calculator – How to use it
- 2 Introduction to Post Office Schemes
- 3 Introduction to Post Office Recurring Deposit Scheme
- 4 How to open a Post Office Recurring Deposit Online
- 5 How to open a Post Office Recurring Deposit Offline
- 6 How to prematurely withdraw from Post Office Recurring Deposit
- 7 Interest Rate in Early Withdrawal/Closure
- 8 Comparing Post Office RD with Bank RD
- 9 What happens after Post Office Recurring Deposit payment default
- 10 Who can open a post office RD account?
Post Office RD Calculator – How to use it
You can use this post office RD calculator to ascertain the size of corpus at maturity of the scheme based on when you invested in it. It’s a super-simple to use tool that can be used to compare and benchmark returns against any other investment you might be considering. It’s also a great way to understand how the post office recurring deposits work in India and if you can use them to reach your investment goals.
Introduction to Post Office Schemes
Savings schemes provided by the post office have always been considered as reliable investment options for the average person in India. The general population in India use post office schemes for anything and everything between amassing funds for children’s education to fulfilling personal goals such as purchasing vehicles, real estate, jewelry, etc.
These are one of the few schemes that are often used by home-making spouses of a family’s breadwinner. This is largely due to the small minimum investment amount.
This is likely why a huge majority of middle class households in India prefer these schemes over other riskier investment tools such as mutual funds, index funds, stock picking etc.
Introduction to Post Office Recurring Deposit Scheme
The post office recurring deposit scheme is a great way for fledgling investors to build a habit of saving and growing their money. It also helps new investors understand the importance of time and compounding when it comes to growing their wealth.
The Indian post office offers a variety of saving schemes. However, the post office recurring deposit scheme is the most popular among them all. This is because the post office recurring deposit scheme is government backed. This means that the returns on your capital are guaranteed by the government.
The minimum investment amount can be as low as Rs. 100 per month and the minimum tenure for locking up the funds is 5 years. You can choose to continue investing money into the post office recurring deposit after the 5 year period is over. You also have the option to stop investing more funds after 5 years and let your corpus grow on its own.
The investment tenure can be extended by 5 years at a time. The post office recurring deposit scheme accepts deposits via either cash or cheque.
It’s important to note that you also have the option to open a joint post office recurring deposit account with another adult and invest money in monthly installments. In addition to this, you can open a post office recurring deposit account for minors who are older than 10 years and let them manage it on their own.
For minors younger than 10 years, parent supervision of the post office recurring deposit account is mandatory. Minors are required to convert their account from minor to adult if they wish to withdraw from the account.
The post office recurring deposit scheme offers a nomination facility too. Upon premature death of the depositor, the maturity amount is given to the nominee in denominations of Rs. 50.
If you make deposits in advance, they are subject to rebates too as long as the minimum number of monthly installments is greater than 6.
The post office gives you the freedom to convert your joint accounts into individual accounts and vice versa at a whim.
How to open a Post Office Recurring Deposit Online
A few things to note before you open your post office recurring deposit account:
The minimum monthly investment amount is Rs. 10
You can open a post office recurring deposit account only with cash/cheque
Steps to open a post office recurring deposit account:
- Transfer money from your bank to IPPB account
- Visit DOP products and from there pick post office recurring deposit
- Enter your post office recurring deposit account number and your customer ID
- Decide and enter your investment duration and monthly amount
How to open a Post Office Recurring Deposit Offline
Visit Post Office:
Choose a post office that is in proximity to your location. Ask for the application form for Post Office Recurring Deposit.
Start filling the form as per the guidelines. You can also download the form online and fill in all the necessary details before going to a Post Office.
Make sure all the details you enter are correct as per your Aadhar card. The following details will be asked:
- Permanent Address
- Date of Birth
- KYC Documents such as Pan Card, Passport, etc
- Nomination details ( Make sure you nominate the right person)
- Details of your first deposit
- Aadhar Card Details
Submit the form with all the supporting documents to the Post Office Officials.
Your account will be opened and you can start depositing money.
How to prematurely withdraw from Post Office Recurring Deposit
We do not recommend prematurely withdrawing from your post office recurring deposit account, however, if you must, keep the following things in mind:
- You are allowed to withdraw a maximum of 50% of the total money deposited in the account only once before your tenure is over.
- You are not allowed to make a withdrawal if your post office recurring deposit account has not been active for at least a year and has seen at least 12 monthly investments.
- You can only withdraw funds in the multiples of Rs. 5.
- If you do manage to withdraw funds, you’ll be required to pay this back either through monthly installments or a one time deposit
- The post office may charge interest on the amount.
- Any amounts that have not been repaid will be deducted by the post office from your maturity amount.
Let’s take an example to demonstrate how these rules will affect you.
Mr. X is trying to save money for his children’s education by saving money through Post Office Recurring Deposit. He saves Rs 10000 every month. After 3 years he has invested Rs 3,60,000.
His mother has fallen sick, and he is an urgent need for money to pay hospital bills. Since he was investing the money regularly without any breaks, he is eligible for a premature withdrawal.
He is entitled to withdraw 50% of the money invested i.e. 50% if Rs 3,6000 which is equal to an amount of Rs 1,80,000. He can withdraw this money for any emergency.
But he will have to repay this money either in installments or a single lump sum. It depends on the post office whether they want to waive off the interest rate on this amount or RD earns are modified until the amount is repaid
Suppose Mr. X was unable to repay this amount before RD matures, the sum will be deducted from the final maturity payout.
Interest Rate in Early Withdrawal/Closure
When you invest some money for saving plans such as RD through Banks/Post Office, they use this amount for further investments for high returns. With these returns, they pay you off the interest rate/returns that were guaranteed.
Any early withdrawal from any account results in the total corpus value decreasing. That means the post office will now won’t be able to invest the whole corpus value. That is why the person who withdraws/closes an account before maturity is asked to pay out a certain interest.
As observed, the interest rate typically ranges from 6.5% to 8.6% per annum which depends on multiple factors. If anyone makes an early withdrawal that can cause the interest rate to go down by 1-2 %, and the individual will be asked to pay this interest to account for the decrease.
Once this amount is recovered, the interest will come back to its normal value.
Comparing Post Office RD with Bank RD
Anybody who knows something about investing knows that investing even a small amount every month with discipline results in a massive corpus given enough time. This is all due to the magic of compound interest.
A question that often comes to mind when thinking about recurring deposits is which one is better? Bank recurring deposits or post office recurring deposits?
The answer to this question can be discovered by looking at both of these schemes in depth.
Firstly, banks have the allowance to deduct TDS on the interest amount of RD whereas post office does not do so at all. It’s important to note that banks will deduct TDS only if your interest per annum is greater than Rs. 10,000. Also, this deduction takes into account the entire amount of interest and not just the amount greater than Rs. 10,000.
In the case of post office recurring deposit, the income from interest is taxed under the income tax act and falls under ‘Income from other sources’.
Now, let’s compare the tenure of post office rd accounts and bank rd accounts. The key difference between the two is the fact that a bank RD gives you flexibility to pick your tenure, You can choose a tenure from as short as 6 months to as high as a decade.
Compare this to the post office recurring deposit scheme which forces its account holders to invest funds for at least 5 years and you’ll notice the difference in flexibility. It’s easy to deduce that a post office recurring deposit is good for you only if you have a longer time frame of investment whereas bank FDs can be used for shorter time frames.
Lastly, let’s review the volatility of interest rates in bank RDs and post office recurring deposits. The interest rate provided by banks is variable and changes every year based on the bank’s discretion. This essentially means that your maturity amount is not fixed and can fluctuate. To the contrary, post office recurring deposits have a fixed interest rate that are announced by the government. This ensures that you get the promised maturity amount at the end of your tenure without fail.
One caveat to note is that though bank RD interest rates are flexible, they may fluctuate in either direction. This means that there’s also a chance that you’ll make a greater return on a bank RD as compared to a post office recurring deposit.
What happens after Post Office Recurring Deposit payment default
Once you open a post office recurring deposit account, you are required to make timely monthly payments for at least a period of 5 years. In the event that you default on a payment, you will be subject to a penalty. This penalty is charged at 5 paise for every 5 rupees.
If you default only once, you will be required to pay the penalty and the installment amount. However, if you default more than 4 times in a row, your post office recurring deposit account will be closed.
Once your post office recurring deposit account is closed, you have two months to re-open it and start making monthly installments again. Failure to do so within 2 months leads to the account getting shut down permanently and you’re not allowed to make any more deposits to that account.
Who can open a post office RD account?
You can Post Office Recurring Deposit account for 5 years.
You need to be an Indian Resident to open this account. Your age should be above 18 years.
If you are below 18 years you can open a joint account with your guardian. Parents or guardians can open this account on behalf of the minor.
NRIs are not eligible to open this account. If you opened an account before becoming an NRI the account can be used till the maturity date.
Any person other than guardian cannot open this account on behalf of the minor.