Post Office Recurring deposit scheme

Context

Regarding the deposit schemes for small savings in India, there are nine savings schemes that India Post offers in which recurring deposit or RD accounts offer an interest rate of 7.2 per cent per annum.

Background

India Post operates across a network of more than 1.5 lakh post offices in the country provides a variety of banking services.
Among the nine savings schemes that India Post offers, recurring deposit or RD accounts offer an interest rate of 2 per cent per annum.
Small savings instruments help the citizens to achieve their financial goals over a particular time period.
Interest rates on these post office saving schemes move in line with the government's interest rates on small savings schemes, which are revised on a quarterly basis.

About

What is recurring Deposit (RD)?

A recurring deposit is a type of term-deposit.
Unlike a fixed deposit account, a recurring deposit account allows the investor to park a fixed amount of funds at regular intervals; for instance, every month.

How to open a recurring account (RD)?

A post office recurring deposit (RD) account can be opened by cash as well as cheque. In case of cheque, the date of deposit is the date of presentation of cheque, according to India Post.
Any number of RD accounts can be opened in a post office.
Account can also be opened in the name of a minor. A minor of 10 years and above age can open and operate the account.

Benefits

The maturity period of post office RD account is 5 years. However, it can be continued for another five years on a year-to-year basis.
It can be opened with a minimum of ? 10 per month or any amount in multiples of ? 5.
There is no maximum limit on investment in post office recurring deposit (RD).
One withdrawal up to 50 per cent of the balance is allowed after one year.
The monthly deposits should be credited on any day of the month.

Disadvantage

The withdrawal amount should be repaid in one lump-sum along with interest at the prescribed rate at any time during the currency of the account.
Non-payment of a monthly instalment leads to a default.
If in any RD account, there is monthly default amount, the depositor has to first pay the defaulted monthly deposit with default fee and then pay the current month deposit, according to India Post.

Small savings schemes in India

The small savings instruments include
- Public Provident Fund Account (PPF)
- Sukanya Samriddhi Scheme
- Senior Citizen Savings Scheme
- Post Office Savings Account
- 5-Year Post Office Recurring Deposit Account (RD)
- National Savings Certificates (NSC)
They are the major source of household savings in India.
The small savings schemes basket can be classified under three categories. They are;
- Postal deposits: Post Office Savings Account(SB), National Savings Recurring Deposit Account(RD), National Savings Time Deposit Account(TD) etc.
- Savings certificates: National Savings Certificates (VIIIth Issue), Kisan Vikas Patra (KVP) etc.
- Social security schemes: Public Provident Fund (PPF), Senior Citizens ‘Savings Scheme (SCSS) etc.
Interest rates are reviewed every quarter by the Government for these schemes