Safe investments and guaranteed returns have always been the top priority for working people and middle class families. Amidst the fluctuations in the stock market and risks in mutual funds, the savings schemes of the Post Office i.e. the Indian Postal Department still remain the strongest and most reliable support for crores of citizens of the country. If you and your spouse want to raise secure capital in a fixed time frame for your future, children's higher education, down payment on a new house or any major financial goal, then Post Office's 5-year National Savings Recurring Deposit Account (RD) can prove to be an ideal option for you. According to new calculations by financial analysts, if a husband and wife together systematically save ₹31,000 every month through a joint account, then on maturity of five years they can create a huge and 100% secure corpus of more than ₹22 lakh. Let us understand how the compounding math of this government scheme works and why this scheme is so popular for common families.
Post Office Recurring Deposit (RD) is a government-backed monthly savings scheme designed to inculcate the habit of regular savings among small and medium investors. Unlike bank FD, there is no compulsion to invest a huge amount in lump sum, rather you have to deposit a fixed amount from your income every month. The tenure of this scheme is 5 years i.e. full 60 months. Presently the Government of India is providing interest on this scheme at the rate of 6.7 percent per annum, which is calculated on Quarterly Compounding basis every quarter.
The biggest USP of this scheme is that there is a Sovereign Guarantee of the Government of India on the capital deposited and the interest received. This means that every single penny of yours deposited in the post office located in any corner of the country is completely safe. While DICGC provides only insurance cover up to ₹ 5 lakh in case of bank collapse, 100% government protection is applicable on your entire deposit in the post office.
Under the Post Office RD Scheme, the account can be opened alone (Single Account) or along with your wife as 'Joint Account'. According to post office rules, two or three adults together can open 'Joint A' or 'Joint B' type account. Opening a joint account with your wife offers many practical and legal advantages. The first advantage is that both partners can jointly decide on a common amount of savings from the monthly household budget, which maintains financial discipline. Another major advantage is that in case of any untoward incident or emergency, the family does not have to go through the hassle of any legal process or inheritance certificate to operate the account and receive the maturity amount.
Additionally, if both husband and wife are working, both can contribute to this account from their respective incomes. Even if the wife is a housewife, the husband can ensure financial security and self-reliance by opening a joint account with his wife in her name.
Now let's talk about the main data that attracts every investor. Let us assume that you and your wife together start an RD of ₹31,000 per month in the post office for a period of 5 years. Based on the current official interest rate of 6.70% per annum (compounded quarterly), the calculation works as follows:
Monthly Deposit: ₹31,000
Total investment period: 5 years (i.e. 60 months)
Total principal deposited in 5 years: ₹31,000 × 60 = ₹18,60,000 (Rs. eighteen lakh sixty thousand)
Applicable interest rate: 6.7% per annum (compounded quarterly)
Total interest earned in 5 years: Approximately ₹3,52,340 (Rs three lakh fifty two thousand three hundred forty)
Total corpus to be received on maturity: ₹18,60,000 + ₹3,52,340 = ₹22,12,340 (approximately ₹22.12 lakh)
Thus, with just 60 months of discipline, your total investment comes to ₹18.60 lakh and you get a net interest of over ₹3.5 lakh without any market risk, leaving you with a lump sum capital of over ₹22 lakh. Even after 5 years, if you do not need this money immediately, then you can extend this RD account for the next 5 years by applying, due to which this amount more than doubles in 10 years on the basis of compound interest.
Many times investors worry about what will happen if they suddenly need money in 5 years. The Post Office RD Scheme provides extremely flexible and customer-friendly facilities in this matter. After completion of exactly one year of account opening (payment of 12 installments), the account holder can avail loan up to 50 percent of the total balance in his account. The interest rate on this loan is only 2% more than the interest on RD, which you can easily repay in lump sum or monthly installments. This does not close your account and also fulfills your emergency needs.
If due to any reason the account has to be closed prematurely, pre-mature closure is allowed after completion of 3 years from the date of account opening. However, on pre-mature closure, you get the same interest rate as a post office savings account, hence financial advisors recommend completing the tenure of 5 years only.
The process of opening RD account in post office is very simple and accessible. You can open it offline by visiting your nearest post office and filling the required forms, or if you have an India Post Payments Bank (IPPB) account, you can also manage it through mobile banking from home. To open an account, you and your spouse need to submit your identity proof (Aadhar Card, Voter ID or Passport), PAN Card, address proof and passport size photograph.
To deposit the installment, you have to deposit the money between 1st to 15th of the month (if the account is opened before 15th) or between 16th to the last date. Non-payment of installments on time attracts nominal default charges, but four consecutive defaults may render the account inactive, which can also be revived. This 5-year RD scheme of the Post Office is proving to be the strongest pillar for regular monthly savings and building a secure future without any worries.