A post office recurring deposit is a deposit scheme which allows you to add up savings by depositing a fixed amount each month. The money deposited earns interest over a fixed period of time. This is a scheme offered by the Indian postal service, where the interest paid on recurring deposits is compounded quarterly.
A recurring deposit is different from fixed deposit as the contributions must be made each month, rather than in a lump sum. A recurring deposit is an ideal investment for young professionals and workers in the unorganised sector as it helps nurture the habit of investing regularly in a periodic manner.
To open a recurring deposit account, you must visit nearest post office. Fill in the application form and submit the duly filled and signed form along with KYC documents. You can open an RD Account by paying in cash or cheque. In case payment is made by cheque, the date of presentation of the cheque would be considered as the date of deposit.
For opening senior citizens account, separate forms are provided. You can open any number of RD accounts in one or multiple post offices. Transfer of accounts is also permitted from one post office to another. This feature is useful for individuals who have transferable jobs. The accounts can also be transferred from single to joint accounts and vice versa.
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Post office recurring deposit is a 5 year scheme where you must make regular monthly deposits for 5 years. The deposits can be withdrawn along with the total interest accrued on maturity. This scheme helps add to savings by investing in post office recurring deposits and earning interest over a period of time. Account holders are also provided with an option to extend the deposit for another five years on a year by year basis.
Post office recurring deposit offers a higher rate of interest than bank recurring deposits. This scheme offers high interest on deposits which helps fulfill financial goals. From January 2019 to March 2019 the interest rate on Post Office Recurring Deposit is 7.3% a year, which is compounded quarterly. The minimum amount required to open a recurring deposit account is Rs 10 and there is no restriction on the upper limit. However the monthly deposit amount must be in multiples of Rs 5.
See Also: How To Calculate Tax On RD Interest?
There are times when you have shortage of funds or urgent requirements. So, the post office recurring deposit allows you to withdraw money before maturity. Given below are some important points related to premature withdrawal of RD:
Check the key differences between RD in banks and Post Office RD:
Protection of Deposits: The money deposited in post office recurring deposit is fully secure as it is backed by the Union Government and bears a Sovereign Guarantee.
Tenure of RD: the post office recurring deposit is offered only for a fixed period of 5 years. The banks offer flexible tenure and allow you choose a tenure of the RD as per convenience.
Interest Rate: Currently, the Post office RD offers better rates of interest than bank RDs which is 7.3% a year, compounding quarterly. The interest rate on Bank RD is not fixed and varies across banks.
The POTD offers a rebate on advance payment of 6 months. If you don’t opt for advanced payments, then you can pay installments on the due date of each month. A maximum of 4 defaults are allowed within the tenure of the RD. In case the subsequent deposits are not made on or before the due date, a default fee is charged at Rs 0.05 for every 5 rupees. However, the post office decides to discontinue the RD account for 4 consecutive payment defaults. The discontinued account can be revived within 2 months. In case the account is not revived, no further deposits can be made.
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