Small Savings Schemes of the Post Office (India Post) have always been the first choice for those who are looking for fixed, safe and government guaranteed returns away from the ups and downs of the stock market and mutual funds. Post Office's 'National Savings Recurring Deposit Account' i.e. 5-Year Post Office Recurring Deposit (Post Office RD Scheme) is a financial instrument that gives an opportunity to common citizens, farmers, employees and small businessmen to develop the habit of regular savings. If you save just ₹ 3,000 every month (i.e. ₹ 36,000 annually), then this amount, compounded in this post office scheme, turns into a huge safe fund of more than ₹ 5,47,500 on maturity. The biggest feature of this scheme is that the Sovereign Guarantee of the Government of India is available on the capital deposited in it, due to which every rupee of the investors remains 100% safe and any market crisis has no effect on it. The complete mathematics of converting ₹ 36,000 annually (₹ 3,000 per month) into ₹ 5.47 lakh. In the Post Office's 5-year RD scheme, the interest is calculated on a quarterly basis using the Quarterly Compounding rule, due to which the investor gets much more profit than the normal simple interest. The basic tenure of this scheme is 5 years, which can be extended for the next 5 years by giving application. Monthly Savings Amount: ₹3,000 per month Annual Total Investment: ₹36,000 per annum Applicable Interest Rate: 6.7% per annum (quarterly compounded) Scenario for the first 5 years: Your total deposit in 5 years: ₹1,80,000 Estimated interest earned on completion of 5 years: ₹34,097 Total Maturity Amount after 5 years: ₹2,14,097 Extend account up to 10 years If you extend this account for the next 5 years (total 10 years) instead of withdrawing the money after 5 years: Your total deposit in 10 years: ₹3,60,000 (₹3,000 × 120 months) Total compound interest earned in 10 years: ₹1,87,500 Total maturity fund received on completion of 10 years: ₹5,47,500 (approx. Rs 5.5 lakh) The biggest impact of the power of compounding is visible in the last 5 years, where your earned interest grows faster than the pace of the principal amount, giving the fund a bigger size. Key Features and Eligibility Rules of Post Office RD Scheme Post Office Recurring Deposit Account is available to any citizen of the country with extremely easy and flexible terms: Who can open the account: Any citizen of India above 18 years of age can open an individual (single) account. Three adults together can also open a joint account (Joint A or Joint B). Investment in the name of children: A minor above 10 years of age can open an account in his own name, while for children below 10 years, a guardian (mother/father) can open an account. Minimum and Maximum Limit: This account can be started with a minimum of ₹100 per month. There is no upper limit on maximum investment; You can deposit any amount as per your capacity in multiples of 100. Number of accounts: A person can open as many different RD accounts as he wants in the post office. Nomination Facility: Free facility to register nominee's name is available at the time of account opening or at any time thereafter. After 5 years, there is a rule to extend the account for next 5 years. Post Office RD is basically opened for a period of 5 years. But if you want to get a bigger corpus of ₹5.47 lakh, you can continue it for 10 years as per the departmental rules: Extension Process: Before completion of 5 years, the account holder has to submit a simple application form (Extension Form) in the concerned post office. Interest rate protection: The account will continue to operate for the next 5 years at the same fixed interest rate at which the account was opened or the rate applicable at the time of extension. Option to continue without fresh deposit: If after 5 years you do not want to deposit ₹3,000 every month, you can still leave the deposited ₹2.14 lakh in the account for the next 5 years. Interest will continue to be added on that also on quarterly basis. Important rules related to loan, pre-mature closure and penalty Post Office provides many facilities to RD account holders in times of emergency financial needs: 50% loan facility: After the account remains active for 1 continuous year (12 installments), up to 50% of the deposited amount can be taken as loan. The interest on this loan is only 2% more than the RD interest rate, which can be repaid in lump sum or in monthly installments. Premature Withdrawal: Under special circumstances, the account can be prematurely closed after completion of 3 years from the date of opening. However, in such a situation, payment is made as per 4% simple interest rate of Post Office Savings Account. Installment deposit date and penalty: If the account is opened between 1st and 15th of the month, then the installment has to be deposited by the 15th of every month. If the account is opened after 16th, the installment has to be paid by the last working day of the month. A nominal default fee (penalty) of ₹1 per ₹100 is charged for non-payment of installments on time. How to open RD account in post office: Online and offline process To join this scheme, the Department of Posts has made both digital and traditional medium very simple: Offline medium: Visit your nearest post office (Head Post Office or Sub Post Office). Fill the RD Account Opening Form (Form-1). Also attach two passport size photographs, self-attested copies of Aadhar Card, PAN Card and Domicile Certificate and deposit the first installment in cash or cheque. Online Mode (IPPB Mobile Banking): If you have a digital account with India Post Payments Bank (IPPB), you can open Post Office RD directly from your bank account by visiting 'DOP Services' from home through IPPB Mobile App and set Auto-Debit every month. Bank RD vs Post Office RD: Which option is more beneficial? In many ways, Post Office RD is considered more attractive and reliable for common investors as compared to commercial banks. Most banks pay more attention to RDs of 1 to 3 years and for longer tenures of 5 to 10 years their interest rates are often reduced. At the same time, the post office offers a fixed quarterly compound interest rate of 6.7% for a long tenure of 5 years. Additionally, only deposits up to ₹5 lakh in banks are insured under DICGC, while the entire money deposited in post offices is directly protected by the Sovereign Backing of the Government of India. Talking about tax rules, the interest received from RD is taxable as per the income tax slab, but from a 10-year perspective, it is the most effective medium for regular disciplined savings. If you commit to disciplined savings of just ₹3,000 every month, this 5-year recurring deposit scheme from the post office can provide you with a strong financial security blanket of ₹5,47,500 without any risk over the next 10 years.
