What is Recurring Deposit ?
A Recurring Deposit (RD) is a special type of term deposit offered by the post office and banks that lets people deposit a specific amount every month into their RD account and earn returns at the rates offered for deposits. It is similar to initiating an FD of a specific amount in monthly installments. This scheme matures on a specific future date along with all the deposit amounts made every month. This scheme offers individuals an opportunity to build up their savings through regular monthly deposits of a fixed amount over a fixed tenure. The minimum tenure for an RD is generally 6 months and the maximum varies from institution to institution. RDs can be funded by standing mandates which are the orders by depositors to the bank to withdraw a specific amount from their current/saving account and credit to the recurring deposit account.
Post Office Recurring Deposit
Apart from providing postal and mailing services, the post office also offers some financial services to the general public. One of these financial services is the Post Office RD scheme which is widely popular because of its attractive interest rate, and that’s why is preferred over and above bank RDs. These RDs are also taken as an ideal alternative to FDs for those investors who do not want to lock a large sum in one go. In this article, we will talk about Post Office RD Schemes, their interest rates, and various important aspects.
Also Read : ICICI Bank FD Interest Rates
Eligibility
Following individuals can open an account under the Post Office RD scheme:
An adult individual.
Joint account with up to 3 adults. (A joint account can be converted into single and vice versa)
Guardian on behalf of a Minor or Person of Unsound Mind
Guardian is not required if a minor has attained the age of 10 years. The RD account can be opened in his name.
HUFs and NRIs are not eligible. Though if an individual opened the account and after a period becomes NRI, he can continue the RD till maturity.
A single individual can have more than one account in his name or jointly.
No maximum age limit exists to open an RD account.
Key Details of Post Office Recurring Deposit Scheme
| Minimum Amount | Rs. 100 per month (any amount in multiples of Rs. 10 thereafter) |
| Maximum Amount | No limit |
| Tenure | 5 years |
| Minimum Age | Minor can open in supervision of guardian Minor who is of the age of 10 years |
| Maximum Age | No limit |
| Missed Deposit Penalty | Rs. 1 for every Rs. 100 |
| Interest Rate | 5.80% p.a. |
| Nomination Facility | Available at the time of opening and afterward too. |
Documents Required
Account opening form
Two passport size photos.
Identity and Address proof. (PAN, Aadhaar, IT return, License, Voter ID or Ration Card)
Nominee and witness to complete the formalities.
When to Deposit ?
The first investment installment is made at the time of account opening. After that, if you have opened the account between the dates 1st to 15th of the month, the subsequent installments must be made within these dates only. And if you have made the deposits between the dates 16th to end of the month, the subsequent installments must be made within these dates.
Investors should note that if the installments are made by pay order/cheque/DD, the date of clearance will be taken as the date of deposits by the Post Office.
Recurring Deposit Interest Rate
The interest rate for this scheme is subject to revisions periodically by Post Office. The current interest rate stands at 5.8% per annum. The interest is compounded every quarter, which makes sure that a sum of money multiplies by the time it reaches maturity.
Failure OR Default in Depositing the Installment
There are two cases in this scenario. Let us discuss the same.
1st Case: Default of less than 4 months
If investors default in installment for not more than 4 months, then the maturity date can be extended equally to the number of such defaults. For instance, if you default for 2 months, then the maturity date will be extended for 2 months and you can deposit the defaulted amount at the time.
2nd Case: Default of more than 4 months
If investors default for more than 4 months, the account will be deemed to be discontinued. The revival of the account will be allowed only within a tenure of 2 months from the 4th default. If the investor fails to deposit within the prescribed time, then the account will become discontinued and no deposits will be allowed thereafter.
Premature Closure
Investors are allowed to terminate the RD account at any point in time after the completion of 3 years. But you won’t receive the interest rate of RD on such closure instead post office saving interest rate will be payable. However, premature closure is not permitted until the period for which advanced deposits are made.
Advance Deposit
Individuals can also make advance deposits into their RD account and avail rebates deposits. The rebate on advance deposits is applicable for at least 6 months of deposits. The applicable rebate is Rs.10 for 6 months and Rs.40 for 12 months. The advance deposits can be made at the time of opening of the account or anytime thereafter.
Taxation on Recurring Deposit
The contributions to Post Office RD account is not eligible for claiming tax deductions under Section 80C of the Income Tax Act,1961. Also, the interest earned on the RD account is taxable as per the income tax slab rate applicable to the investor.
Loan Facility
Individuals can also avail loans against their recurring deposits. The loan can be availed of up to 50% of the balance amount after at least 12 installments have been paid & the account has been continued for 1 year.
- The repayment of the loan can be made via a lumpsum deposit or in equal installments
- The interest rate on the loan will be 2% plus the interest rate applicable on the RD account.
- Interest will be calculated on the period starting from the withdrawal date to the repayment date
- In case loan repayment is not done till the maturity date, loan and interest will be deducted from the maturity amount of RD account.
Partial Withdraws
Partial withdrawal is not allowed in the post office RD account. However, the account offers the facility to avail loans after the account is continued for at least 1 year. As mentioned before, the loan needs to be repaid in one lump sum or equal installments.
Frequently asked questions (FAQs)
Q. What is the age limit to open a Post Office RD account ?
A. There is no set age limit to open a PO RD account. But, if the individual is a minor below the age of 10 years, then the account can be opened by a guardian on behalf of the minor, and if the minor is above 10 years of age, then the account can be opened in his/her own name.
Q. Is there any charge or penalty for the missed deposit ?
A. Yes, if the deposit is missed then the penalty will be charged in that case. The penalty is charged with an amount of Rs.1 for the deposit of every Rs.100.
Q. What is the interest rate offered on Post Office RD ?
A. The interest rate offered is revised periodically. At present, post office RD is offering a 5.80% of interest rate w.e.f. 01st April 2020.
Q. What is the tenure of the Post office RD ?
A. Post office RD has a fixed tenure of 5 years. If an investor wants to invest for a longer tenure, then he/she can open a new account after the maturity of the old account. There is no limit on the number of accounts.
Q. What are the deposit limits in the post office RD ?
A. The minimum deposit amount in post office RD is Rs.100 per month. Additional investment can be done in multiples of Rs.10. There is no maximum limit for investment in the account.
Q. Do the contributions into the Post Office RD account eligible for tax deductions ?
A. The contributions or deposits in the post office RD account are not eligible for any tax deductions under Section 80C of the Income Tax Act, 1961. The interest earned from the RD account is taxable as per the income tax slab rate under the Income Tax Act, 1961.
Q. Does the post office give a loan facility ?
A. Yes, the post office RD gives the loan facility to the account holders. The loan can be availed after the 1 year of account opening of an amount up to 50% of the deposit amount.
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