Design Credits: Rakesh Mohan
Amit, a young professional, earning Rs. 25, 000 per month is looking for an investment option with fixed returns. As a precautionary step, he prefers to invest in something that will give him reasonable returns and where there isn’t any lump sum amount involved.
He has no savings but a steady monthly income. So, he decides to do a quick analysis of the available investment options on the internet and finds that investing in a Recurring Deposit (RD) could be a smart choice!
Amit, however, is not sure about the rules, benefits and other features of a Recurring Deposit. Are you in the same situation as him? Let’s start.
What’s a Recurring Deposit?
A term deposit of a special kind, Recurring Deposits offer fixed interest returns on periodic, regular investments with a fixed maturity period. These periodic investments can be monthly or quarterly. You can choose to open a Recurring Deposit in a bank or a post office.
If you plan to open a Recurring Deposit in a bank you can enjoy a flexible tenure, whereas a postal Recurring Deposit has a fixed tenure of five years. The postal RD earns a decent interest rate of 8.4% and is compounded on a quarterly basis.
Features of a Post Office RD
- You can open a Recurring Deposit account either individually or jointly with a co-investor.
- The minimum amount you can invest is Rs. 10.
- It offers a fixed rate of return for the entire duration of the deposit, unlike in a bank RD where the interest rate keeps fluctuating.
- You can withdraw up to 50% of the total amount after a year.
- On premature closure after a year, you will only earn 3.5% interest (similar to a Post Office Savings Account).
- You can choose to transfer the RD account from one post office to another.
- You can open multiple postal RDs which are operated either individually or jointly.
- You also have the option to convert a single account to a joint account and vice versa.
- Any delay in deposits will incur a default fee of 5 paise for every Rs. 5 deposited to the account. Also, in case of four consecutive defaults, the account will be discontinued and can be revived only after two months.
How to Open a Recurring Deposit in a Post Office?
In order to open a postal RD account, you will not require a huge list of documents. Here’s what you need:
- Duly filled and signed RD form.
- Pay-in slip and specimen signature slip.
In case of senior citizens, separate forms may be required which you can collect from the post office.
Payment procedure
- In case a postal RD is opened from the 1st to 15th of the month – subsequent deposits can be up to the 15th of every month.
- If an account is opened on the 16th or towards the end of the month– subsequent deposits can be made up to the end of the month.
- In case of monthly deposits made via cheque, the date of credit of the cheque shall be treated as the date of deposit.
- In case of default payments, it is compulsory to pay the money for the defaulted months along with a default fee, before making any fresh deposits.
Advantages of Recurring Deposits in a Post Office:
- Regular monthly investment with no burden of a lump sum investment.
- Fixed rate of interest and reasonable returns.
- Safe investment option as post offices work under the government.
- Suitable for investors with a low risk appetite.
- Ideal for low income group individuals as it helps increase savings.
Recurring Deposits with a post office, work as a small, regular investment option which converts into a big amount at the end of the tenure. The only drawback is that you cannot do an online balance transfer or make deposits every month to your postal RD account. But, think of the higher returns that it offers as opposed to bank RDs. You can surely walk the distance to the nearest post office!
Additional Reading: Thinking About Breaking Your Recurring Deposit?