5-year post office recurring deposits: Know interest rates, penalties and other details
New Delhi: Recurring deposit (RD) is an investment tool that allows people to regularly deposit a fixed amount of money and generate interest income. It is considered as a secure investment option among the salaried class and middle-income group.
Post office recurring deposits currently offer an interest rate of 5.8%, compounded quarterly. The interest received is fully taxable. A quarterly compounding of interest will increase the effective yield. This is a government-backed scheme; therefore, it is preferred by conservative investors. However, if you are planning to invest in recurring deposits, you should know the penalties as well in case you miss on monthly installments.
Post Office recurring deposit comes with a tenure of 5 years.
The minimum monthly deposit is Rs 100 and thereafter one can deposit in the multiples of Rs10. In case the account was opened in the first 15 days of the month, you need to deposit the amount till the 15th of the month. In case the account was opened after that the amount has to be deposited before the last date of the month.
One can also take a loan on RD at the rate of 2% plus the rate of interest on RD.
The RD account can be closed prematurely after 3 years after the opening of account. In case of premature closure, post office savings account interest will be paid.
An RD helps you to regularize savings every month. The immediate returns are higher in case of FDs as the principal amount earns the interest immediately while an RD builds your fund gradually which earns less interest while it is smaller. Both options extend a helping hand during a financial emergency as you can take a loan against both. You can borrow up to 90% of the value of your deposit.