For people looking for a safe and disciplined way to build savings, the Post Office Recurring Deposit (RD) Scheme can be an attractive option. The scheme is designed for investors who prefer making regular monthly deposits instead of investing a large amount at one time.
Unlike a Fixed Deposit (FD), where a lump sum is invested upfront, an RD allows you to deposit a fixed amount every month for a predetermined period. Once the account reaches maturity, the total deposits are returned along with the interest earned.
RD accounts are available through both banks and post offices. However, the Post Office RD comes with a standard five-year tenure and several features that can make it useful for regular savers.
Post Office RD Investment Tenure
Bank RDs may offer different tenure options, such as one, two, three or five years. The Post Office RD Scheme has a standard maturity period of five years.
The scheme currently offers an interest rate of 6.7% per annum. One of its notable features is the loan facility available against the amount accumulated in the RD account.
This facility can be particularly useful if you need funds during the investment period without wanting to immediately close the RD.
When Can You Take a Loan Against Post Office RD?
An account holder becomes eligible for a loan against the Post Office RD after making 12 consecutive monthly deposits.
In simple terms, you need to maintain the RD and make regular deposits for at least one year before becoming eligible for this facility.
After completing the required deposits, you can borrow up to 50% of the amount accumulated in the RD account.
The loan can be repaid either through a lump-sum payment or through equal monthly instalments, depending on the applicable terms.
What Is the Interest Rate on an RD Loan?
The interest charged on a loan taken against the Post Office RD is 2 percentage points higher than the interest rate applicable to the RD account.
Interest on the loan is calculated from the date the money is withdrawn until the date it is repaid.
If the loan remains unpaid when the RD reaches maturity, the outstanding loan amount along with the applicable interest can be recovered from the maturity proceeds.
To apply for a loan against the RD, the account holder needs to submit a completed application form along with the RD passbook at the post office.
Start a Post Office RD With Just ₹100
One of the key attractions of the Post Office RD is its low entry requirement. An account can be opened with a minimum deposit of just ₹100, making it accessible to people who want to begin saving with a small amount.
There is no upper limit on the amount that can be invested in the scheme, allowing investors to choose their monthly contribution according to their financial capacity.
The RD also benefits from quarterly compounding of interest, which can help the investment grow over the five-year period.
Can You Open Multiple Post Office RD Accounts?
Yes. An individual can open more than one RD account under the Post Office scheme.
The account can be opened individually or jointly. A Post Office RD account can also be opened in the name of a child, subject to the applicable rules.
This flexibility allows families to use the scheme for different savings goals.
Can You Close a Post Office RD Before 5 Years?
The normal maturity period of a Post Office RD is five years. However, premature closure is allowed after three years, subject to the applicable rules and conditions.
The scheme also provides a nomination facility, allowing the account holder to nominate a person to receive the account benefits in accordance with the applicable provisions.
After the RD completes its five-year maturity period, the account can also be extended for another five years.
Key Benefits of Post Office RD Scheme
The Post Office RD can be useful for individuals who want to build savings through regular monthly contributions. Some of its major features include:
- Investment can start with just ₹100
- Standard tenure of five years
- Current interest rate of 6.7% per annum
- Interest compounded quarterly
- Loan facility after 12 consecutive instalments
- Loan of up to 50% of the accumulated balance
- Option to open single or joint accounts
- RD account can be opened in a child’s name
- Nomination facility available
- Premature closure possible after three years, subject to rules
- Option to extend the account for another five years after maturity
Is Post Office RD a Good Option for Regular Savings?
For investors who prefer making small, regular monthly investments rather than putting a large amount into a single investment, the Post Office RD can be a convenient savings option.
Its low minimum deposit, fixed tenure, interest earnings and loan facility provide flexibility for people looking to build a corpus gradually.
However, investors should always check the latest interest rate, withdrawal rules, loan conditions and other applicable terms before opening an account, as Post Office small savings rules and rates can change.
Disclaimer: The information provided above is for general informational purposes. Interest rates, rules, eligibility requirements and other features of the Post Office RD Scheme may change from time to time. Investors should verify the latest terms with India Post before making an investment decision.