Apart from various banks, the Post Offices in India also offer recurring deposits. Here’s all you would want to know about the PO RD accounts.
In “An introduction to Recurring Deposit”, we understood what a recurring deposit is. We saw how it works, and also studied its characteristics. We also saw how it compares with a mutual fund (MF) systematic investment plan (SIP).
Most banks offer a recurring deposit. But apart from banks, the Post Office also offers an RD account.
And many people, especially staying in rural areas where banks have a lesser presence, may prefer to open a recurring deposit account in a post office.
Let’s see the details of the recurring deposit account offered by the post offices in India.
Duration / Tenure
The Post Office Recurring Deposit (PO RD) account can be opened for 5 years.
Extension of Account
After the initial 5 years get over, the account can be extended by 5 years any number of times. That is, on maturity, you can continue the account for another 5 years.
Interest Rate Offered
The rate of interest earned in this RD account is 7.5% per annum, compounded every 3 months (quarterly).
Investment Amount / Denomination of the Account
The amount of each monthly deposit is known as the “denomination” of the recurring deposit account. It is fixed at the time of opening the account, and remains the same during the entire term of the RD account.
The minimum amount per monthly deposit is Rs. 10. There is no upper limit – the only condition is that the deposit amount has to be a multiple of Rs. 5.
Each deposit in the recurring deposit account has to be of the same amount. Each deposit has to be made before the end of the calendar month.
Premature Closure of the RD Account
Premature closure of the recurring deposit account is allowed 3 years after opening the account. In this case, the interest paid would be equivalent to the interest offered on the PO Savings Account.
An extended account (an account extended after the completion of the initial 5 years) can be closed at any time without any penalty.
Withdrawal / Loan Facility
A loan can be availed from the PO RD account after the account has been in operation for at least 1 year. The rate of interest for such a loan would be 2% over and above the interest rate on a 5 year PO fixed deposit at the time of taking the loan.
The loan can be repaid in a lump-sum, or in equal monthly installments along with the monthly RD payment.
If the loan is not repaid, the loan amount and the interest payable on it are deducted from the amount payable at the time of closure / maturity of the account.
Rebate on Advance Deposit
If deposits are paid as a lump-sum in advance, a rebate is offered as an incentive.
If 6 to 11 deposits are paid in advance, the rebate offered is Rs. 1 per Rs. 10 of account denomination.
If 12 or more deposits are paid in advance, the rebate offered is Rs. 4 per Rs. 10 of account denomination.
Thus, if you have an account of denomination Rs. 100 (payment of Rs. 100 each month), and you pay 7 installments in advance, you would have to pay Rs. 690 instead of Rs. 700.
If you pay 12 installments in advance, you would have to pay Rs. 1160 instead of Rs. 1200.
Nomination facility is available for the PO RD account. You can make a nomination at the time of opening the account, or any time during its tenure.
Income Tax Treatment / Benefits
There is no Section 80C benefit available on deposits made to the post office recurring deposit account.
(To know more about tax benefit through Sec 80C deductions, please read “Saving Income Tax – Understanding Section 80C Deductions”)
There is no tax deducted at source (TDS) on the interest that you earn in the post office recurring deposit.
Retention of maturity proceeds
After the PO RD account matures, you can choose not to withdraw the final amount and can continue the account for a maximum of 5 years without making any further deposits.
The amount in the account would continue to earn interest in this case. The interest paid would be equivalent to the interest offered on the PO Savings Account.
Safety of Investment
Since post offices are operated by the Government of India, your investment in a PO recurring deposit is risk free.
Who can open the account?
The PO RD account can be opened in a single name or in joint names. If opened jointly, the maturity amount can be paid on a “both or survivor” or “either or survivor” basis.
The account can also be opened for minors. If the minor is more than 10 years of age, the account can be opened in his own name. For a minor younger than 10 years, the account can be opened by a guardian on behalf of the minor.
A passbook is issued at the time of opening the account, and all deposits are entered in this passbook.
PO RD Account and NRIs / PIOs
A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) can not open the post office recurring deposit account.
If a person opens the PO RD account, and subsequently becomes an NRI, he can continue the PO RD account till its maturity.
Where can the account be opened?
Its easy – the PO RD account can be opened in any post office.