Post Office RD – Eligibility, Features & Interest Rate

Besides extending mail services, post offices offer several financial services to their customers in the form of savings schemes and life insurance.

The savings scheme extended by post offices serves as a risk-free investment option. The Post Office Recurring Deposit is one of such savings schemes extended for the general public.

Typically, a post office RD is among the most popular savings alternative to traditional fixed deposits and other long-term schemes that are offered by post offices.

What is Post Office RD Scheme?

Post Office RD Scheme is one among the 9 small savings schemes which are backed by the Government of India. The said scheme serves as mid-term investment options; wherein, investors are required to keep their deposits active for at least 5 years.

Being risk-free, the scheme serves as an opportunity for both conservative and inexperienced investors to park a fixed sum of funds at regular intervals. Individuals accrue interest on their deposit which is compounded quarterly.

Who is it Suitable for?

The security that comes with investing in an RD account in post office and the opportunity to earn compounding interest on the same makes this scheme feasible. Individuals who earn a fixed income but want to generate wealth over time may consider the Post Office RD Scheme effective and suitable.

Who are Eligible for Opening an RD account in Post Office?

Individuals who want to open an RD account in Post Office must meet these criteria –

  • Indian Nationals who are over the age of 18 years.
  • Minors who are over the age of 10 years.
  • Parents or guardians who wish to open and operate the account of a minor on their behalf.

Indian nationals above the age of 18 years would be deemed eligible to operate an RD account in Post Office either singly or jointly.

However, a minor above the age of 10 years would be able to operate their account jointly with their guardian.

What are the major features of a Post Office RD?

The features of Post Office RD make the savings scheme an attractive investment option.

Here is a list of the major features of Post office RD scheme –

    • Negligible limitation on deposits: Individuals need to deposit as little as Rs. 10 each month. There is no upper limit to the amount of investment which can be made. Individuals can open an RD scheme in post office with either cheque or cash.
    • Interest: The scheme offers a higher rate of interest to the depositors. The sum of interest is compounded quarterly and enables individuals to generate better earnings.
    • Operation: Individuals can operate their account either singly or jointly. In case of a joint account, two adults can jointly operate their RD account in Post Office. However, if one of the account holders is a minor above 10 years of age, they would be able to operate the account in joint association with their guardian.
  • Nomination facility:The scheme offers the opportunity to avail a nomination facility. Individuals can opt for such a facility either at the time of opening an account of RD scheme in the post office. They can also decide to opt for the facility after opening their account under the said scheme.
  • Rebate facility: Individuals can avail the rebate facility on their advance deposits. But such a facility is limited to only 6 instalments.
  • Ease of transfer: Investors can transfer funds from their post office recurring deposit easily. They are also entitled to open any number accounts in several post offices.
  • Ease of withdrawal: The said scheme allows individuals to withdraw their deposit without hassle. They can withdraw up to 50% of their deposit balance a year after opening the account.

What is the interest rate of Post Office RD?

The rate of interest offered on the RD scheme in post office in 2019 is 7.2% p.a. Such interest rate makes it one of the most preferred investment options available.

Additionally, the compound interest extended at each quarter is a much-desired perk of the scheme. It ensures that individuals would have a strong corpus at their disposal by the time it matures. Such a feature would directly help in wealth creation and would ensure financial stability for later years.

How is the Interest of Post Office RD calculated?

The sum of interest offered on a Post Office Recurring Deposit follows the compounding principle. It uses the compounding interest formula mentioned below to calculate the sum of interest.

A= P x (1+R/N) ^ (Nt)


A= Maturity Amount

P= Recurring deposit

N= Number of times the interest is compounded

R= Rate of interest

t= Tenure

For example,

Mr. G invests Rs. 6,000 into his PORD at the rate of 7.2% p.a. for 60 months. The sum accrued at maturity would stand at –

A= P x (1+R/N) ^ (Nt)

= Rs. 4,34,379.

How does taxation apply to a Post Office RD account?

An RD account in the post office falls under the tax exemptions umbrella as per Section 80C. Individuals can claim up to Rs. 1.5 Lakh as per annum tax exemption under this section.

However, the interest generated through the post office RD scheme is liable for taxation. Individuals need to pay a tax amount as per their income tax slab. Additionally, an interest that exceeds Rs. 10,000 would be liable for a TDS deduction. Individuals who have an active PAN would pay TDS at the rate of 10%, while those without one would pay the same but at the rate of 20%.

What is the rebate facility on Post Office recurring deposit?

Rebate is the discount offered to the Post Office RD Scheme holder by the post office to encourage them to deposit money into their account in due advance.

However, in the case of the RD scheme in post office, individuals would be able to avail rebate on their deposits that were invested at least 6 months in advance. Moreover, such rebates are made available on a deposit equivalent to at least 6 instalments.

The example below highlights how rebate works on RD in post office –

Mr. Pandey decides to deposit Rs. 1,000 for a total tenure of 10 months as an advance in his RD account in post office.

Under the rebate system, Mr. Pandey is entitled to avail a rebate of Re. 1 for every Rs. 10 he has advanced towards the deposit. The sum deposited by him being Rs. 1,000, he would accrue a total of Rs. 100 as rebate.

However, in case of delay in deposits, individuals would be liable to pay the penalties. They are allowed a maximum of 4 defaults after which their account will be discontinued. They would accrue a default penalty of 5 paise on every Rs. 5; the sum penalty accrued along with the missed deposits would have to be deposited into their RD account.

Individuals can revive their ‘discontinued account’ within 60 days post their 5th default.

What is the premature withdrawal facility on Post Office Recurring Deposit?

Individuals can access their Post office recurring deposit and fund their urgent requirements. But they can withdraw from such account only after a year of opening it up to 50% of the available funds. A simple rate of interest would be applied on the withdrawn funds.

The Post Office RD Scheme is a viable investment option for individuals who are looking for a way to save money for the short-term.

However, short-term Mutual Funds can provide a much higher amount of returns against a certain amount of risks. Short-term Mutual Funds are better equipped at allowing individuals to meet their short-term financial goals with strategic market-linked investments.

When it comes to choosing the best Mutual Funds for short-term investments, avail professional assistance for the best possible returns on investment and build a higher corpus of funds in less time.