Post Office's Recurring Deposit i.e. RD scheme can be useful for those people who want to gradually build a bigger fund by saving a small amount every month. There is no need to invest a huge amount in lump sum. You deposit a fixed amount every month as per your capacity and on completion of maturity of 5 years, the deposited amount is returned with interest.
The special thing about this scheme is that it gives the benefit of compound interest along with regular saving. Apart from this, if needed, a loan can also be taken against the RD without closing it midway. However, before investing, please check the current interest rate, terms and calculation of maturity amount.
First understand what is Post Office RD
You can use Post Office RD for regular savings. In this, a fixed amount has to be deposited every month. The account tenure is normally 5 years. That is, by depositing a small amount every month, you can create a big corpus at the end of the fixed period. This can be especially beneficial for those people for whom it is easy to keep aside a small amount every month, but it is difficult to invest a large amount at once.
Interest is also available on interest
Interest in Post Office RD is calculated quarterly i.e. every three months. Since the interest is compounded, the interest already deposited is also included in the further calculations. For this reason, the amount received on maturity is higher than the amount deposited only. As per the given example, the calculation has been done assuming an interest rate of 6.7% per annum on RD.
By depositing 1 thousand every month, about 71 thousand
If you deposit Rs 1,000 every month in Post Office RD, then your total deposit in 5 years will be Rs 60,000. Based on 6.7% annual interest rate, this amount can be around Rs 71,000 on maturity. That means, by saving a small amount every month, you can avail interest on the amount deposited in five years. The actual maturity amount may change as per the interest rate and RD rules applicable at that time.
Loan can be availed after 12 installments
There is no need to withdraw the money deposited in RD completely at the time of need. Under the rules, the facility to take loan against RD account is available after depositing 12 consecutive installments. After completion of one year, loan can be taken up to 50% of the amount deposited in the account. With this, closing of RD can be avoided to meet the need of money in emergency.
How much interest will have to be paid on the loan?
The interest on loan taken against RD is 2% more than the interest rate applicable on RD account. For example, if the interest rate applicable on RD is 6.7%, then the interest rate on the loan can be 8.7% per annum. Therefore, before taking a loan in an emergency, it is important to see what is the amount required and in what time it can be returned.
4 big benefits of Post Office RD
- Safe Savings: Post Office RD operates under the government postal system, hence it is included in low-risk investment options.
- Habit of saving: Depositing a fixed amount every month forms the habit of regular saving. In this, the minimum deposit amount can be started from Rs 100.
- Invest as per your capacity: The investor can decide the monthly installment as per his financial condition. According to the basic information, there is no limit on maximum deposit.
- Loan facility: After depositing regular installments for one year, loan can be taken against RD if needed.
Who can open RD Account?
Any person can open Post Office RD account. Account can also be opened in the name of children. A child of 10 years or above can operate his account himself. Apart from this, maximum three people can open a joint account. Application for opening an account can be made at the nearest post office. Before investing, information about the current interest rate, deposit rules, premature withdrawal and loan conditions of the account must be obtained from the post office.
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