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Small Savings Schemes of the Post Office (India Post) have always been the first choice for those who are looking for fixed, safe and government guaranteed returns away from the ups and downs of the stock market and mutual funds. Post Office’s ‘National Savings Recurring Deposit Account’ i.e. 5-Year Post Office Recurring Deposit (Post Office RD Scheme) is a financial instrument that gives an opportunity to common citizens, farmers, employees and small businessmen to develop the habit of regular savings.
If you save just ₹ 3,000 every month (i.e. ₹ 36,000 annually), then this amount, compounded in this post office scheme, turns into a huge safe fund of more than ₹ 5,47,500 on maturity. The biggest feature of this scheme is that the Sovereign Guarantee of the Government of India is available on the capital deposited in it, due to which every rupee of the investors remains 100% safe and any market crisis has no effect on it.
In the Post Office 5 Year RD Scheme, the interest is calculated on a quarterly basis using the Quarterly Compounding rule, due to which the investor gets much higher profits than the normal simple interest. The basic tenure of this scheme is 5 years, which can be extended for the next 5 years by giving application.
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Monthly Savings Amount: ₹3,000 per month
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Annual Total Investment: ₹36,000 per year
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Applicable interest rate: 6.7% per annum (compounded quarterly)
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Scenario for the first 5 years:
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Your total deposit in 5 years: ₹1,80,000
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Estimated interest earned on completion of 5 years: ₹34,097
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Total maturity amount after 5 years: ₹2,14,097
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On extending the account for 10 years: If you roll over this account for another 5 years (total 10 years) instead of withdrawing the money after 5 years:
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Your total deposit in 10 years: ₹3,60,000 (₹3,000 × 120 months)
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Total compound interest earned in 10 years: More than ₹1,87,500
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Total maturity fund to be received on completion of 10 years: ₹5,47,500 (about five and a half lakh rupees)
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The biggest impact of the power of compounding is seen in the last 5 years, where your interest earned grows faster than the principal amount, giving the fund a bigger size.
Post Office Recurring Deposit Account is available to any citizen of the country with extremely easy and flexible terms:
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Who can open an account: Any citizen of India above 18 years of age can open a Single Account. Three adults together can also open a joint account (Joint A or Joint B).
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Investment in the name of children: A minor above 10 years of age can operate an account in his own name, whereas for children below 10 years of age, a guardian (mother/father) can open an account.
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Minimum and maximum limits: This account can be started with a minimum of ₹100 per month. There is no upper limit on maximum investment; You can deposit any amount as per your capacity in multiples of 100.
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Number of Accounts: A person can open as many different RD accounts as he wants in the post office.
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Nomination Facility: Free facility to register nominee at the time of account opening or at any time thereafter is available.
Post Office RD is basically opened for a period of 5 years. But if you want to get a bigger corpus of ₹5.47 lakh, you can continue it for 10 years as per departmental rules:
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Extension Process: Before completion of 5 years, the account holder has to submit a simple application form (Extension Form) in the concerned post office.
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Interest rate protection: The account will continue to operate for the next 5 years at the same fixed interest rate at which the account was opened or the rate applicable at the time of extension.
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Option to continue without new deposit: If after 5 years you do not want to deposit ₹3,000 every month, you can still leave the deposited ₹2.14 lakh in the account for the next 5 years. Interest will continue to be added on that also on quarterly basis.
The Post Office offers several facilities to RD account holders in times of emergency financial needs:
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50% loan facility: After the account remains active for 1 continuous year (12 installments), up to 50% of the deposit amount can be taken as loan. The interest on this loan is only 2% more than the RD interest rate, which can be repaid in lump sum or in monthly installments.
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Premature Withdrawal: Under special circumstances, the account can be closed prematurely after completion of 3 years from the date of opening. However, in such a situation, payment is made as per 4% simple interest rate of Post Office Savings Account.
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Installment payment date and penalty: If the account is opened between 1st to 15th of the month, then the installment has to be deposited by 15th of every month. If the account is opened after 16th, the installment has to be paid by the last working day of the month. A nominal default fee (penalty) of ₹1 per ₹100 is charged for non-payment of installments on time.
To join this scheme, the Postal Department has made both digital and traditional mediums very simple:
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Offline medium: Go to your nearest post office (Head Post Office or Sub Post Office). Fill the RD Account Opening Form (Form-1). Also attach two passport size photographs, self-attested copies of Aadhar Card, PAN Card and Domicile Certificate and deposit the first installment in cash or cheque.
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Online Mode (IPPB Mobile Banking): If you have a digital account with India Post Payments Bank (IPPB), you can open Post Office RD directly from your bank account by visiting ‘DOP Services’ from home through IPPB mobile app and set up Auto-Debit every month.
In many ways, Post Office RD is considered more attractive and reliable for common investors as compared to commercial banks. Most banks pay more attention to RDs of 1 to 3 years and for longer tenures of 5 to 10 years their interest rates are often reduced. At the same time, the post office offers a fixed quarterly compound interest rate of 6.7% for a long tenure of 5 years.
Additionally, only deposits up to ₹5 lakh in banks are insured under DICGC, while the entire money deposited in post offices is directly protected by the Sovereign Backing of the Government of India. Talking about tax rules, the interest received from RD is taxable as per the income tax slab, but from a 10-year perspective, it is the most effective medium for regular disciplined savings.
If you commit to disciplined savings of just ₹3,000 every month, this 5-year recurring deposit scheme from the post office can provide you with a strong financial security blanket of ₹5,47,500 without any risk over the next 10 years.