In a country like India, where savings are an important part of every household’s financial planning, the Post Office Recurring Deposit (RD) Scheme stands out as a safe, simple, and disciplined way to build wealth over time. It doesn’t matter whether you’re a salaried employee, a small business owner, a housewife, or even a student—this scheme is open for all, and that’s what makes it truly inclusive.
Let’s explore how the Post Office RD Scheme works, what makes it popular, and why it is still one of the most trusted small saving schemes for lakhs of Indians.
What Is the Post Office RD Scheme?
The Post Office Recurring Deposit (RD) is a government-backed small savings scheme that allows you to invest a fixed amount every month and earn interest on it. It’s a 5-year deposit plan, where you deposit money regularly (monthly), and at the end of the term, you receive a lump sum that includes your total deposits plus interest.
This scheme is managed by India Post, which means it has full government backing, making it one of the safest places to park your savings.
Key Features of Post Office RD Scheme
Let’s break down the most important features that make this scheme attractive:
🔒 Government Security
It is a government-backed scheme, which means your money is completely safe. There is no risk of market fluctuation or loss.
💰 Small Monthly Investment
You can start investing with just Rs. 100 per month, and in multiples of Rs. 10. There is no upper limit, so you can increase your monthly contribution as per your financial comfort.
⌛ Fixed Tenure of 5 Years
The maturity period of the RD account is 5 years (60 months). After that, you receive the total maturity amount, including compound interest.
📈 Attractive Interest Rate
As of April–June 2025, the interest rate is 6.7% per annum, compounded quarterly. This makes it better than many bank fixed deposits (FDs), especially for risk-averse investors.
🧮 Quarterly Compounding
Interest is calculated on a quarterly compounding basis, which means you earn interest on the principal as well as the accumulated interest every quarter, enhancing your returns.
🔄 Easy Auto-Debit
You can link your RD to your post office savings account, and the monthly deposit can be auto-debited to avoid any missed payment.
How the Maturity Amount is Calculated
Let’s understand with a basic example:
Suppose you invest Rs. 1,000 every month in a Post Office RD account for 5 years (60 months). At the current interest rate of 6.7%, compounded quarterly, you will receive approximately Rs. 70,240 at the end of 5 years.
This means:
- Total Deposited: Rs. 60,000
- Interest Earned: Rs. 10,240
- Maturity Amount: Rs. 70,240
The compound interest formula ensures that your money grows steadily, even if you’re only putting in small amounts every month.
Eligibility to Open a Post Office RD Account
This scheme is designed for all Indians, without any discrimination. Here’s who can open an account:
- Any Indian resident above 10 years of age
- Minors above 10 years can open the account in their name
- Parents/guardians can open an account on behalf of minors
- Joint accounts (maximum two people) are also allowed
You don’t need a high-income profile or any credit score to qualify.
Where and How to Open an RD Account
Opening a Post Office RD account is simple:
- Visit your nearest post office.
- Collect the RD account opening form.
- Submit KYC documents – Aadhaar card, PAN card, passport-size photo, and address proof.
- Deposit your first installment (minimum Rs. 100).
- Receive your passbook and start monthly payments.
You can also open and manage your account via India Post’s online banking system, if you have an active post office savings account and internet banking enabled.
Missed Installments and Penalty Rules
Even though the scheme is flexible, discipline is important. If you miss a monthly deposit, there is a penalty of Rs. 1 for every Rs. 100 per month for each default.
However, you can:
- Pay the missed installment(s) later
- If you miss more than 4 installments consecutively, the account gets discontinued
- You can revive the account within 2 months of discontinuation by paying pending dues and penalty
This ensures that investors take the monthly deposit schedule seriously, helping them form a saving habit.
Premature Closure of RD Account
If you urgently need money, you can close the RD account before maturity, but only after completing 3 years (36 months).
However, if you do that:
- You will lose some interest, as it will be calculated at the savings account rate, not the RD rate.
- You won’t get full benefits of compound interest.
So, it’s best to stay invested for the full 5 years unless it’s an emergency.
Loan Facility Against RD Account
Another feature of the Post Office RD Scheme is that after completing 12 deposits (1 year), you can take a loan of up to 50% of the total deposited amount.
This loan can help during emergencies without closing your account. The interest on the loan is just 2% above the RD interest rate, making it cheaper than personal loans or credit card advances.
Example:
- If your RD interest rate is 6.7%, the loan interest would be 8.7%
- This is much lower than regular bank personal loans (typically 11–14%)
You must repay this loan in lump sum or EMIs before the RD matures.
Taxation on Post Office RD
While the Post Office RD gives secure returns, it doesn’t offer any income tax benefits under Section 80C. Also, the interest earned is taxable, and it will be added to your annual income and taxed as per your income slab.
However:
- No TDS (Tax Deducted at Source) is deducted by the post office
- You need to declare the interest earned in your annual ITR
This is ideal for small savers or senior citizens whose total income is below the taxable limit.
Why Choose Post Office RD Over Bank RD?
| Feature | Post Office RD | Bank RD |
| Safety | Fully secured by Govt. of India | Depends on the bank’s stability |
| Minimum Deposit | Rs. 100/month | Rs. 500–Rs. 1000/month (varies) |
| Interest Rate | 6.7% (as of Q1 FY25) | 5.5% to 7% (depends on bank) |
| Premature Closure | Allowed after 3 years | Allowed anytime with penalty |
| Tax Deduction | No TDS | TDS above Rs. 40,000/year interest |
For rural and low-income families, or conservative investors, the Post Office RD scheme is more accessible and transparent compared to private bank RDs.
Who Should Invest in Post Office RD?
✅ First-time savers who want to develop a habit of monthly saving
✅ Low-risk investors who want government-backed returns
✅ People in rural areas where banks are not easily available
✅ Parents who want to save for their children’s future in a disciplined way
✅ Senior citizens with limited income and no appetite for risk
This scheme acts as a stepping stone toward long-term financial planning, especially for those who are not yet comfortable with equity investments or mutual funds.
Sources: India Post, Ministry of Finance, National Savings Institute
