Everything About Post of Recurring Deposit

A small percentage of the income that we earn always has to be saved. To do so, Indian banks offer various deposit methods like Recurring Deposit (RD), Fixed Deposit (FD) and much more.

Another significant advantage of these deposits is that we get an interest amount based on the amount and period of investment. But do only banks provide deposit facilities?

The answer would be No, because the Indian Post Office provides us with a Recurring Deposit facility for 5 years.

1. Post Office RD Scheme

This Post Office RD scheme is recommended if you're looking for a safe and profitable investment option.

This is a 5 year scheme, where an individual has to make a fixed deposit amount at regular intervals of time. Depending on the individual's needs, the deposit can be paid monthly or quarterly.

People from all professions can use this RD scheme to save their income on a regular basis. Not just that, the interest money at maturity can also be highly beneficial.

2. Components of RD Scheme

You should know the components and details of the scheme before investing your money. Let’s look at it in detail.

1. Opening an account:

The process of opening a RD account is quite simple and not difficult. All you have to do is go to your nearest post office and get an RD form. Fill in the details and submit it along with a pay-in slip and initial deposit amount.

That’s it, your saving period starts and all you have to do is make regular deposits at the post office.

2. Tenure:

The tenure for Recurring Deposits is fixed in the post office at 5 years. Deposits can be made on a monthly or quarterly basis, but they are usually made every month.

It is possible to extend the current tenure to a maximum of 10 years if a RD wishes to extend their tenure.

3. Deposit amount:

Under the Post of RD scheme, the primary objective is to ensure that under budgeted people benefit from the scheme. In this case, the minimum is Rs. 100 per month and there isn’t any limit to the maximum amount.

The deposition amount can be chosen in such a way that it is in multiples Rs. 10 and once the amount is fixed it remains constant for the entire tenure period.

4. Date of deposit:

Let’s assume that the RD account has been opened on the 15th of a month. Then the subsequent deposition has to be made between 16th and last date of the following month.

If the account is opened between the 1st and 5th of a month, then the next deposit should be made between the same dates of the following month. In the 5 year tenure, 60 depositions are made, which should be done between the mentioned dates.

5. Penalty for late payment:

We discussed the time period in which deposits must be made. So what happens when you forget to make the deposits? The Post Office rules and regulations, specify two penalties for late payments.

• One account holder can make a maximum of 4 default payments. If it is done for the fifth time, the account is deactivated. This can be revived within the next 2 months.

• There is a charge of 1 rupee for every 100 rupees for every delayed payment. This fine is added to the subsequent payment.

6. Rate of Interest:

From 01.04.2020, the interest rate for post office RD is 5.8 % per annum, which is compounded quarterly. The calculation are done with the help of simple compounding interest formula.

A = P*(1+R/N)^(Nt)

Where,

A = maturity amount P = Monthly deposit N = Number of times the interest is compounded R = Rate of Interest t = Tenure

Eligibility:

• There are certain eligibility criteria for opening a RD account in the post office,
• Indian individuals should be above the age of 18.
• In case of minors, they should be above the age of 10, with a parent/guardian operating the account on their behalf.
• Individual RD accounts or joint RD accounts can be opened, depending on the preferences of the account holders.

3. Documents required to open a RD account

• RD account opening form from the post office.
• Two passport-sized photographs of the individual.
• The following proofs can be used as identification and address proof: Aadhaar, passport, PAN card, driving license, voter's identity card, ration card.
• Select a nominee for the RD account.
• A witness signature to complete the process.

4. Features of Post office RD scheme

• The deposit amount for RD account starts from Rs. 10 and there isn’t any limit for the maximum deposition method.
• The RD account can be transferred from one post office to another. It is not necessary to remain in the same post office during your entire tenure.
• One person can open any number of RD accounts in the same post office or different places. There is no limit for the number of RD accounts.
• The opening deposit can be made by cash/cheque/DD. If a check is used for depositing, then the date on the check will be considered the opening date.
• The nomination needn’t be chosen at the time of opening, it can also be done later.
• After one year of opening RD account, 50% of the balance amount can be withdrawn by the individual,
• An account can be changed to a single account or a joint account whenever needed.
• When an individual pays 6 months at once, they get a rebate.

5. Post Office RD Rebate

Rebate is another feature that is offered to individuals who open an RD account in the post office. This rebate can be used to make advanced payments, to save a considerable amount for future use.

A rebate is intended to offer advance deposits for the customer while at the same time providing a discount to assist with premature withdrawals.

Here the customer can make a minimum of 5 advance payments, to a maximum of 11. As a rebate the customer will be offered Rs. 10 for 6 months and Rs. 40 for 12 months. The advanced deposit can be made at the time of opening or any time after that.

6. Loan offer with RD

A further benefit of the Post Office RD is that you can get a loan from your RD account. Upon completion of 12 deposits without interruption for one year, the customer can borrow 50% of the total sum credit.

Loans can be repaid in a lump sum or in equal payments, but they must be repaid before the RD matures. When the individual fails to repay the loan, the amount will be deducted from the maturity amount, including interest. If interest rates are higher, the customer has to pay the difference amount.

Interest on the loan amount borrowed is 2% + the RD interest applicable to the account. The interest will be calculated from the day the amount is borrowed till the day of repayment.

Conclusion:

If you wish to invest your money today there are different options provided by both private and government organizations. For those who are looking for a risk-free investment option, this RD scheme is a very useful option.