Risk-free in nature, the Post Office Recurring Deposit (Post Office RD) is a scheme catering to the mid-term savings requiring the depositors to park their investment at least for a period of five years. The scheme required the depositors to deposit a fixed amount at regular intervals, the interest is accrued to the depositors and compounded on a quarterly basis.
Opening an account
The beneficiary must be an Indian citizen and aged 18-years or above. Those between 10-18 years of age would need a parent or guardian to open a joint account with them. Opening a Post Office RD account is simple, you just need to submit the RD form along with a pay-in slip with the initial deposit.
The minimum amount to open an account is set at Rs. 10 per month, and there is no cap on the maximum amount that one can deposit at fixed intervals.
The tenure of a Post Office RD is five years which is further extendable by another 5 years, making the total tenure period of 10 years. The deposits need to be made on a monthly basis beginning from the date that the account was opened on.
Rate of return
The present interest rate applicable to the Post Office RD is 7.2% per annum compounded quarterly. The returns on such an account can be calculated using the simple compounding interest formula.
The Post Office RD scheme can be exempted from tax deduction under Section 80C of the Income Tax Act and an individual can claim up to Rs.1.5 lakh per annum, however, the interest generated is subject to tax deductions.
Depositors can also avail of rebate facility for the investments that were made at least six months in advance. It is important to note that the rebate will only be made if the deposited amount is equal to the installments of six months.
Premature withdrawal can be availed only after a period of one year. The depositor can withdraw 50% of the investment after 1 year but a 1% charge will be levied on the amount being withdrawn.
The recurring deposit is viewed as an excellent measure to create a financial cushion as it inculcates the habit of saving and helps in achieving long-term financial goals.