Post Office Recurring Deposit Account (RDA)

CA Manish K Dhoot (CA, B. Com, NCFM, CPCM) (5015 Points)

11 August 2010

Post Office Recurring Deposit Account (RDA)

A Post-Office Recurring Deposit Account (RDA) is a banking service offered by Department of post, Government of India at all post office counters in the country. The scheme is meant for investors who want to deposit a fixed amount every month, in order to get a lump sum after five years. The scheme, a systematic way for long term savings, is one of the best investment option for the low income groups.

Features:

The minimum investment in a post-office RDA is Rs 10 and then in multiples of Rs. 5/- for a period of 5 years. There is no prescribed upper limit on your investment.
The deposit shall be paid as monthly installments and each subsequent monthly installment shall be made before the end of the calendar month and shall be equal to the first deposit. In case of default in payment, a default fee is chargeable for delayed deposit at 0.20 Paise per month of delay, for Rs.10 Denomination. After more than four defaults, the account shall be treated as discontinued in case the account is not revived within two months from the fifth default.
For Advance deposits for 6 months or 12 months, a rebate is allowed at the prescribed rate (For Rs 10 denomination:- Rs.1/- for 6 advance deposits, Rs.4/- for 12 advance deposits.
One withdrawal is allowed after one year of opening a post-office RDA on meeting certain conditions. You can withdraw up to half the balance lying to your credit at an interest charged at 15%. The withdrawal or the loan may be repaid in one lump or in equal monthly installments.
Premature closure is allowed on completion of three years from the date of opening and in such case, interest is payable as per the rate applicable for the Post Office Savings Bank Account.
After maturity of the account, it can be continued for a further period of 5 years with or without further deposits. During this extended period, the account can be closed at any time.

Returns:
The post-office recurring deposits offers a fixed rate of interest, currently at 7.5 per cent per anum compounded quarterly.

Monthly Investment	Total Investment(60months)	Money returned on Maturity (after 60 months)
10	600	728.90
20	1,200	1457.80
50	3,000	3644.50
100	6,000	7289.00
500	30,000	36445.00
1000	60,000	72890.00
1375	82,500	100224.00
5000	3,00,000	364450.00

Advantages:
The post office offers a fixed rate of interest unlike banks which constantly change their recurring deposit interest rates depending on their demand supply position. As the post office is a department of the government of India, it is a safe investment. The principal amount in the Recurring Deposit Account is assured. Moreover Interest earned on this account is exempted from tax as per Section 80L of Income Tax Act.

How to Start Post office RDA:
A post-office RDA can be opened at any post office in the country by filling up the appropriate forms. The account can be opened by an individual adult as a single person account, two adults in a joint mode, or by a guardian on behalf of the minor who has attained the age of 10 years in his own name. A pass book is issued at the time of opening the account. If there is a loss, theft or the passbook is mutilated, a duplicate is issued on a charge. The deposit can be made personally at the particular post office every month or can be made through an appointed agent, who would collect the money from you and enter the same in your passbook.

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Post Office Monthly Income Scheme

The post-office monthly income scheme (MIS) provides for monthly payment of interest income to investors. It is meant for investors who want to invest a sum amount initially and earn interest on a monthly basis for their livelihood. The MIS is not suitable for an increase in your investment. It is meant to provide a source of regular income on a long term basis. The scheme is, therefore, more beneficial for retired persons.

Features:

Only one deposit is available in an account.

Only individuals can open the account; either single or joint.( two or three).

Interest rounded off to nearest rupee i.e, 50 paise and above will be rounded off to next rupee.

The minimum investment in a Post-Office MIS is Rs 1,000 for both single and joint accounts.

The maximum investment for a single account is Rs 3 lakh and Rs 6 lakh for a joint account.

The duration of MIS is six years.

Returns:
The post-office MIS gives a return of 8% plus a bonus of 10 per cent on maturity. However, this 10 per cent bonus is not available in case of premature withdrawals. The minimum investment in a Post-Office MIS is Rs 1,000 for both single and joint accounts.

Deposit Rs

Monthly Interest

Amount returned on maturity

5,000

5,500

10,000

11,000

50,000

333

55,000

1,00,000

667

1,10,000

2,00,000

1,333

2,20,000

3,00,000

2,000

3,30,000

6,00,000

4,000

6,60,000

Advantages:
Premature closure of the account is permitted any time after the expiry of a period of one year of opening the account. Deduction of an amount equal to 5 per cent of the deposit is to be made when the account is prematurely closed. Investors can withdraw money before three years, but a discount of 5%. Closing of account after three years will not have any deductions. Monthly interest can be automatically credited to savings account provided both the accounts standing at the same post office. The interest income accruing from a post-office MIS is exempt from tax under Section 80L of the Income Tax Act, 1961. Moreover, no TDS is deductible on the interest income. The balance is exempt from Wealth Tax.

How to Open:
You can buy a post office MIS at any post-office in India. When you open an MIS, you will get a certificate issued by the post office. In addition, the investor is provided with a passbook to record his transactions against his MIS.

Post Office Senior Citizen Scheme

A new savings scheme called â€˜Senior Citizens Savings Schemeâ€™ has been notified with effect from August 2, 2004. The Scheme is for the benefit of senior citizens and maturity period of the deposit will be five years, extendable by another three years. Initially the scheme will be available through designated post offices through out the country.

Features:

The minimum investment is 1000Rs and in multiples of Rs.1000 subject to a maximum of Rs.15 lakh.

Citizens of 60 years of age and above are eligible to invest. Single or joint account (with spouse only) can be opened. Citizens who have retired under a voluntary or a special voluntary retirement scheme and have attained the age of 55 years are also eligible, subject to specified conditions.

The deposit will carry an interest of 9% per annum (taxable). The maturity period of the deposit will be five years, extendable by another three years.

Premature withdrawal after a period of one year will be allowed, subject to some deductions.

The investments in the scheme will be non-tradable and non-transferable. However, nomination facility will be available.

Non-Resident Indians and Hindu Undivided Families are not eligible to invest in the scheme.

Returns:
The deposit will carry an interest of 9% per annum (taxable).

Advantages:
This Scheme is most beneficial to Senior citizens and provides a high rate of interest as compared to bank interest of 4.5- 4.75%. Although the interest on the deposit is taxable, the deposits themselves are tax free. As the post office is a department of the government of India, it is a safe investment. The principal amount is assured.

How to Start Post office Senior Citizens account:
A Senior Citizen Account can be opened through any designated post office through out the country. The account can be opened by any individual 60 years of age and above either individually, or jointly (with spouse only).