Post Office Recurring Deposit (RD) Scheme

The 5-Year Post Office Recurring Deposit (RD) account is a government-backed savings plan that encourages disciplined savings with guaranteed returns. Starting January 1, 2024, the plan guarantees an annual interest rate of 6.7 percent compounded quarterly, a sure bet for those who can save money over the long run. The minimum deposit is Rs 100 a month, and the subsequent deposit is in multiples of Rs 10, and there is no upper cap to be deposited. This helps individuals plan their savings scheme as per their capability.

Any single adult, two or three joint account holders, a guardian on behalf of a person of unsound mind or a minor, and minors above 10 years in their own name can maintain an RD account. Deposits are either accepted by cheque or cash, the date of deposit being the date of clearance of cheque.

Depositors have to make their monthly deposits within the specified time limit—15th of the month if the account is opened prior to the 15th, and last working day of the month if opened between the 16th and the 15th. For every defaulted month, a penalty of Rs 1 for every Rs 100 deposit is levied. In the event of four consecutive defaults, the account is closed as discontinued but can be revived within two months. In the event of non-revival, no additional deposits are permitted. But the depositor can postpone the maturity period by the number of defaulted months and pay the defaulted installments within the extension period.

For individuals who wish to make advance deposits, the RD scheme offers lump sum returns for five years. A minimum advance deposit rebate of six installments gives a rebate of Rs 10 for six months and Rs 40 for twelve months for each Rs 100 deposit. Loan facilities are also offered after one year of continuous deposits, and the depositors can use up to 50 per cent of the balance in the account as loan. The loan can either be repaid lump sum or in monthly installments, at a 2 per cent rate of interest over the corresponding RD interest rate. The outstanding loan plus interest due, in case of non-payment at maturity, is deducted from the last maturity value.

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Premature closure of an RD account is permitted only after three years from the date of opening. But in this case, the interest rate payable will be a Post Office Savings Account rate rather than an RD rate. Moreover, an account with advance deposits cannot be closed until the prepaid term is over. At maturity, the RD account has run for five years (60 months) from the date of opening. The account holders can extend the term for another five years, with the extended term at interest charged at the original rate at which the account was opened. The extended account can be closed at any time, and interest on completed years will be payable at RD rates, and an incomplete year will earn savings account interest.

Moreover, if there are no deposits, the account can be kept for up to five years from maturity. In case of death of the account holder, the nominee or legal heirs can get the balance by approaching the concerned post office. On sanction, the nominee/legal heir can choose to continue the account till maturity. The 5-Year Post Office RD Account is a safe and disciplined investment scheme under which one can accumulate wealth over some time. With the benefit of government guarantee, loan facility, and regular savings, it is a highly sought-after vehicle for risk-free investors looking for regular income with tax benefits under Section 80C of the Income Tax Act.