What Is RD?

RD stands for Recurring Deposit.

RD is a savings scheme where you can deposit a fixed amount every month for 5 years.

This scheme is suitable for those who expect to save small amount every month and then receive a big amount at the end of the tenure. 

How Does RD Work?

1. Choose the monthly deposit amount
2. Deposit the fixed amount every month for 5 years
3. At the end of 5 years, you will get the maturity amount (deposit amount + interest earned) 

Features

1. Backed by the Government of India
2. Safe investment option
3. Guaranteed returns
4. Helps you to save as little as Rs. 100 per month and build a big amount in 5 years’ time
5. Encourages the habit of regular savings 

Income Tax Benefits

1.     Income tax benefits will be same on both old and new tax systems.

2.     No income tax benefits.

3.     No tax deduction for the monthly deposit amount under Section 80C of Income Tax Act.

4.     No TDS (Tax Deducted at Source) under this scheme by Post Office.

5.     Interest amount is taxable upon maturity. You need to declare the interest income under "Income from Other Sources" during tax returns and pay the income tax as per your income tax slab. 

Who Can Open the Account?

1.       Only Indian residents can open the account.

2.       Account can be opened by an individual adult.

3.       Joint account can be opened by up to three adults.

4.       A Guardian or Parent can open the account in the name of minor.

5.       A minor of 10 years and above age can open and operate the account. 

How Do You Open the Account?

1.       Account can be opened by cash or cheque.

2.       In case of cheque, the date of deposit will be the date of presentation of cheque.

3.       Any number of accounts can be opened in any Post Office subject to maximum investment limit by adding balance in all the accounts. 

Deposit Limits

1.       Minimum deposit amount per month is Rs. 100.

2.       No maximum limit on monthly deposit.

3.       Deposit amount should be in multiples of Rs. 10.

4.       Once you decide the monthly deposit amount, it cannot be changed thereafter. 

Deposit Date Flexibility

If the account is opened on or before 15^th of a calendar month, then subsequent deposit can be made up to 15^th of next month.

If the account is opened between 16^th and last working day of a calendar month, then subsequent deposits can be made up to last working day of next month. 

Deposit Rebate

There is a rebate on advance deposit of at least 6 instalments. 

Late Deposit Penalty

A penalty fee will be charged if the deposit has not been made up to the prescribed day.

The penalty amount is Rs. 1 per every Rs. 100.

After 4 regular defaults, the account becomes discontinued.

You will have 2 months’ time to re-activate the account.

If not re-activated within 2 months’ time, then further deposits cannot be made.

In any RD account, in case of defaults, you will need to first pay the defaulted monthly deposit along with the penalty fee. Then, you can pay the current month deposit. 

Term

Maturity Period of this scheme is 5 Years.  

Interest Rate (%)

The current annual interest rate is 5.80%.

Interest rate (on the day of account opening) will remain the same throughout the tenure of RD. It will not change even if there are changes to the interest rate thereafter.

From 01-Apr-2016, the interest rate of this scheme has been announced on a quarterly basis. Note that it used to be on a yearly basis earlier. 

Compounding Frequency

Quarterly compounding frequency is followed in this scheme. 

Extension Period

Upon maturity, this scheme can be extended for another 5 years on a year-to-year basis. 

Pre-Mature Withdrawal

One withdrawal up to 50% of the balance will be allowed after one year. 

Pre-Mature Closure

You can close your RD account pre-maturely after 3 years from the date of account opening.

In this case, the interest amount will be calculated as per the interest rate of Post Office Savings Bank (SB) account applicable from time to time since the account opening date.

If you have made advance deposits, then pre-mature closure will not be allowed until the advance deposit period is over. 

Account Conversions

Single account can be converted into Joint account and vice versa.

Minor, after attaining majority, must apply for conversion of the account in his name. 

Account Transfer

Account can be transferred from one Post Office to another Post Office. 

Nomination Facility

Nomination facility is available.

You can nominate either at the time of account opening or after opening the account (but before maturity). 

NRI And HUF

NRI (Non-Resident Indian) and HUF (Hindu Undivided Family) can't open the RD account.