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Post Office Small Savings Schemes have always been the first choice for Indian families to make regular savings safely and without any market risk. In today’s era, when fluctuations in investment options like stock market, mutual funds and crypto have become common, then the common investor is looking for an option where he does not lose even a single rupee of his hard-earned money and gets fixed returns on time. The ‘National Savings Recurring Deposit Account’ i.e. Post Office 5-Year Recurring Deposit (RD) Scheme, operated under the Ministry of Communications of the Central Government, provides exactly such assurance. The biggest feature of this scheme is that it has Sovereign Guarantee of the Government of India, which means that both the principal and interest are completely safe. This scheme is easily available to every section of the society through a huge network of post offices spread from major cities like Lucknow, Varanasi, Kanpur to remote rural areas.
The Post Office 5-Year RD Plan offers great compounding benefits, thereby building a handsome corpus even on small monthly investments. At present, the government is offering an attractive interest rate of 6.7 percent per year on this scheme, which is calculated on the basis of Quarterly Compounding. If an investor saves ₹5,000 every month and deposits it in this account, his total investment in a year becomes ₹60,000. In this sequence, the total principal amount deposited by the investor during 5 years i.e. full 60 months will be ₹ 3,00,000 (Rs 3 lakh). At the current quarterly compounded interest rate of 6.7%, the investor will receive approximately ₹56,830 as interest on completion of 60 months. In this way, on maturity of 5 years, the investor will get a total guaranteed amount of ₹ 3,56,830 (approximately ₹ 3.56 lakh to ₹ 3.57 lakh). This amount becomes a strong support for any middle class family to meet children’s school fees, home renovation or any emergency need.
The rules for opening the account of Post Office RD Scheme have been made very simple and flexible so that any citizen of the country can join the financial mainstream. Any adult Indian citizen can open a single account in his/her name. Apart from this, two or three adults can also open a joint account. Parents or guardians can also operate this account in the name of their minor children below 10 years of age, whereas a minor child above 10 years of age has the right to operate this account with his own signature. The minimum monthly deposit amount for opening an account in the scheme has been fixed at only ₹100, and thereafter any amount can be deposited in multiples of ₹10. The most reassuring thing is that there is no limit on maximum investment, that is, investors can choose to deposit an amount of ₹ 10,000, ₹ 20,000 or even more every month as per their saving capacity.
It is very important to maintain regularity in Post Office RD. If the account is opened in the first fortnight of the month (between 1st and 15th), every monthly installment has to be deposited by the 15th. At the same time, for accounts opened on or after the 16th, there is an exemption to deposit the installment till the last date of the month. If in any month the installment is not deposited on time, a nominal default fee (penalty) of ₹1 per ₹100 is charged by the post office. After 4 consecutive defaults, the account gets temporarily closed, which can be reactivated within the next two months by paying the outstanding installments and penalty. Along with this, the scheme also provides the facility to take an easy loan (Loan Against RD) up to 50 percent of the deposited amount after smoothly running the account for one year. The interest rate applicable on this loan is only 2% higher than the interest on RD, which can be repaid in lump sum or in easy installments.
This plan comes with a lock-in of 5 years, but in case of any emergency, the account holder is allowed pre-mature closure after completion of 3 years (36 months). However, in case of premature closure, instead of RD, interest is payable as per Post Office Savings Account interest rate (currently 4%). At the same time, if the investor wants to continue his savings even after completion of 5 years, he can extend the account for next 5 years by giving a simple application in the concerned post office. The same interest rate that was decided at the time of opening the account remains applicable during the extension period. With secure returns, government guarantee and inculcation of the habit of disciplined monthly savings, this 5-year RD scheme of the Post Office continues to be one of the most trusted investment vehicles in the country for the salaried class, small traders and housewives.