Post Office RD Interest Rate

Post offices are popular in Indian and the main reason is, it provides services more than posting mails. Whether it is a life insurance product or small savings schemes, post offices offer many savings alternatives for working-class people. Out of all the other traditional fixed deposits and long-term savings schemes provided by Post offices- recurring deposit is widely popular among individuals.

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Many people prefer to invest in post office recurring deposits over banks. The reason behind this vast preference of the masses is the attractive interest rate that post offices provide upon maturity.

The interest rate on post office recurring deposits is revised regularly every year. For the current financial year, the post office RD interest rate is 5.8% per annum which is compounded quarterly.

Interest Rate

5.8% p.a. (Compounded Quarterly)

Tenure

5 years

Minimum Deposit

? 100 Per Month

Maximum Deposit

No Upper limit (Any amount in multiple of ? 10)

Missed Deposit Penalty

? 1 for every ?100.

How to Calculate Post Office Recurring Deposit Returns?

The following compounding interest formula is used to calculate the sum of interest on post office recurring deposit:

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

Refer to the table to address the formula:

A

Maturity Amount

P

Recurring deposit

N

Number of times the interest is compounded

R

Rate of interest

Tenure

Let's take an example:

Ms. Shalini invests ? 7,000 into her post office recurring deposit account at the rate of 5.8% for 60 months. She is entitled to receive the accrued maturity amount, i.e. 

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

= ? 4,87,877

Tenure of the Recurring Deposit

Post office recurring deposit is considered as a medium-term investment option by working-class people. Many people invest in RD to secure their immediate future against unfavourable events of life. If you are planning to invest in a post office RD account, make sure to pay continuous deposits for the next 5 years because the minimum tenure of a post office RD account is 5 years. 

Also, if you wish to continue the tenure after this period you can extend as per your convenience because there is a provision that permits the extension of the post office RD account. However, you can only extend the RD account tenure up to a maximum of 10 years. Moreover, the calculation of compound interest every quarter will remain the same in the case of extended tenure.

Features of Post Office RD Interest Rates

  • For the current financial year, the post office RD interest rate is 5.8% p.a. compounded quarterly.
  • The minimum tenure of a post office recurring deposit is 5 years.
  • One is allowed to make a minimum of ?10 deposit in the Post office RD account. There is no limit for maximum deposit in the post office RD account. 
  • You will be charged ? 1 for every ? 100 as a penalty for missing to pay the deposit in the post office RD account. 
  • One can open a joint RD account in the post office for 2 persons.
  • You can get a rebate if you have made advanced deposits for at least 6 months. 

You can transfer your post office recurring account from one post office to another.
Deposit Limit in the RD Account

A recurring deposit is considered the most comfortable investment tool to earn profitable returns at maturity. Usually, people do not go for big investments because it requires big monthly deposits; however with a post office recurring deposit, one can make deposits as per their convenience. The minimum deposit which you can make as per post office RD rules is ? 10 per month. This way the monthly investments won't make a hole in the pocket of any individual. This has made it very easy to invest for the future even for those who just survive on minimum wage. Also, there is no limit for maximum deposit. As per the rule, one can increase the deposit amount in multiples of ? 5 as per their convenience. 

This means, there is always a chance of growth in investment as per your raise in revenue.

Recurring Deposits Dates 

  • As per the minimum tenure i.e. 5 years, you are required to make 60 deposits during that tenure. That means one deposit every month for the next 5 years. 
  • You make the first deposit when you open the post office RD account. Then, you make the next deposit either on the decided date or on the date the account was opened.
  • Deposits made in a recurring deposit account at the post office come with a grace period. This means, if you opened the account between the 1st and 5th of a month, you are supposed to make the next deposits every month between 1st -5th for the next 5 years. 
  • If you have opened the account after the 15th of a particular month, you are supposed to make the deposit between the 16th and the last day of the subsequent month.

Penalties on Delayed Deposits

There might be days when you will be unable to make monthly deposits due to some reason. According to the post office RD rule, you are allowed a maximum of 4 such defaults, post which your account will be turned inactive. You can revive your account within 2 months but after the next (5th default). As per the post office RD rule, you will be charged ? 1 for every ? 100. You will have to pay this penalty besides the regular deposit in order to revive your RD account. 

Rebate:

As a reward mechanism to motivate people to make advance deposits in their post office RD account, post offices offer a rebate. The rebate doesn't seem much in terms of reward, however, it still saves some amount for those who need it. The table below highlights the rebate options provided with a Post Office RD.

Number of Advance Deposit Instalments

Quantum of Rebate

6

? 10 for every ? 100

12

? 40 for every ? 100

Premature Withdrawal:

If for any reason you want to fund your urgent requirements you can withdraw from the post office RD account. However, you must keep the account active for at least 1 year. Also, you can only withdraw 50% of the available amount in the RD. 

The ongoing interest rate would be applied to the withdrawn funds. You are required to repay the withdrawn amount (as and when you can) in lump-sum with the interest applicable. 

Who is Eligible for Opening an RD Account?

If you want to open a Post office RD account, you must meet the following criteria:

  • 18+ years old Indian Nationals.
  • 10+ years old (Minors) 
  • Parents or guardians who wish to open and operate the account of a minor on their behalf.

A 10+ years old Minor can operate their account jointly with their guardian. There is no option for a minor to operate a single RD account.

Final Word

Recurring deposits are considered one of the best ways to make long-term or short-term investments at affordable monthly deposits. A cherry on top of the cake is the interest rate provided by the post office. The compounding interest calculation alongside the minimum deposit of ?10 makes it feasible to invest even for those who survive on marginal wages.

The interest rates are subject to change every year, that is why it is advisable to check the ongoing interest rates before opening a post office recurring deposit account.

Written By: PolicyBazaar - Updated: 19 October 2021

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