Business Economy

Helping you save, in dribs and drabs

Looking to investing in small doses in something that does not subject you to the ups and downs of the stock market? Recurring deposits (RDs) are an option you can consider. They not only fetch a good return but also help inculcate a habit of systematic investment. Besides banks, India Post also offers RD schemes.

Post office RD schemes can be opened in any post office across the country. Even transferring your account is very easy. A duly-filled application form can be given either at the transferring office or the transferee office. However, there is no online facility to operate a post office RD account unlike in banks.

The minimum investment for a post office RD is ₹10 per month; you can invest any higher amount in multiples of five.

There is no limit to the maximum amount you can invest every month.

The minimum investment is much lower than the ₹100/₹500 mandated by banks. Some private sector banks have an even higher minimum investment of ₹1,000.

While a lower minimum investment is a positive for post office RDs, banks offer flexibility in the monthly instalments when you opt for a flex RD, which is not the case with post office RDs.

Also, if you open the account and make your first investment within the 15th of a month, subsequent monthly instalments will have to be paid within the 15th of every month. Similarly, for investments started after 15th of a given month, subsequent instalments will have to be paid within the last working day of the calendar month.

In the event of failure to pay the instalment within the stipulated time-frame, a default fee will be charged at ₹0.05 for every ₹5 due as instalment. In case of default in paying the monthly instalments, the depositor will have to first pay the defaulted monthly deposit with the default fee, before paying further instalments.

If you fail to make the investment for four consecutive months, the RD will be automatically discontinued. However, if you desire to revive it, the same needs to be done within two months. If not, you will not be able to make any further investment. A penal rate of ₹2 per ₹100 will be deducted from the balance in the account.

Post office incentivises those who pay the instalments in advance. Customers get a rebate of 1% if they choose to pay a minimum of six instalments in advance. For example, if the total instalment for six months is ₹20,000, they need to pay only ₹19,800. For advance payment of 12 instalments, the rebate is 4%.

The tenure for a post office RD is five years, unlike banks which offer a wide range of tenures from six months to 10 years. One can however choose to extend it by another five years.

Minor can open account

There is no limit on the maximum number of post ofice RD accounts that can be opened by an individual. Post-office RDs can also be opened in the name of a minor. A minor who has completed 10 years of age can open and operate the account. Upon attainment of majority, the account will have to be converted into a regular account. Joint account can be opened by two individuals, and nomination facility is also available .

The current interest rate on the post-office RD scheme is 7.3% per annum which is compounded every quarter. The interest rate is a tad higher than the 7.25% offered by large private banks such as ICICI Bank and HDFC Bank.

However, if you are a senior citizen (who has completed 60 years of age), banks will offer you an additional 0.5% interest. Also, in post-office RDs, there’s no option for regular interest payment.

Payment for your post-office RD scheme can be made through cheque or by way of cash. In case of cheque payment, the deposit will be effected only upon realisation of the cheque.

While, India Post is a Central government entity and does carry sovereign guarantee, there is no deposit insurance unlike in the case of public/private banks, which cover every individual for deposits of up to ₹1 lakh.

While post-office RDs score over bank RDs for non-senior citizens, given the lowest minimum investment and better interest rate, for senior citizens, bank RDs may be a better option, given the convenience of transacting from the comfort of your home and attractive interest rates.

(The writer is an independent financial consultant)


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