How Post Office RD works
Post Office Recurring Deposit (RD) is a government-backed monthly savings scheme offered by India Post under the National Small Savings Fund. It allows you to build a corpus by depositing a fixed amount every month for a chosen period.
Key mechanics:
- Minimum deposit: ₹100/month (in multiples of ₹10). No maximum limit.
- Standard term: 5 years (60 months). Extensions possible in 5-year blocks.
- Interest rate: 6.7% p.a. (Q1 FY 2026-27), compounded quarterly.
- Compounding method: Each monthly deposit earns interest compounded quarterly until the maturity date.
- Government backing: Deposits are backed by the sovereign guarantee of the Government of India — zero default risk.
Compounding formula
Post Office RD uses quarterly compounding, applied proportionally across each monthly deposit:
| Parameter | Detail |
|---|---|
| Rate | 6.7% p.a. |
| Compounding | Quarterly (4 times per year) |
| Effective quarterly rate | 6.7% ÷ 4 = 1.675% per quarter |
| Each deposit compounds | From deposit date to maturity (months remaining ÷ 3 quarters) |
For a ₹5,000/month deposit over 5 years (60 deposits), the maturity value is approximately ₹3.55 lakh against ₹3 lakh deposited — an interest earn of ~₹55,000.
Penalty for missing instalments
| Situation | Rule |
|---|---|
| Missed instalment | Default fee: ₹1 per ₹100 of missed deposit |
| Regularisation window | Within the same financial year |
| 4+ consecutive missed | Account becomes discontinued |
| Revival window | 2 months from the 4th default |
| If not revived | Foreclosed at 4% savings rate |
Premature closure rules
| Timeline | Interest paid |
|---|---|
| Before 3 years | Not permitted |
| After 3 years | Post Office savings account rate (4% p.a.) |
| At maturity | Full contracted RD rate (6.7%) |
Loan against Post Office RD
After 12 months of deposits, you can borrow up to 50% of your RD balance. This is useful for short-term liquidity without breaking the deposit:
- Loan rate: RD rate + 2% (currently 6.7% + 2% = 8.7%)
- Repayment: Must be repaid before maturity
- Shortfall: Unpaid loan is deducted from maturity proceeds
Tax treatment
| Item | Tax treatment |
|---|---|
| Interest earned | Taxable as ‘Income from Other Sources’ |
| TDS by Post Office | None (you self-declare) |
| Section 80C deduction | Not available |
| Effective tax cost | Depends on your income tax slab |
Unlike PPF or NSC, there is no Section 80C deduction on Post Office RD deposits. If you are in the 30% tax slab, the 6.7% RD rate effectively yields ~4.67% post-tax.
Post Office RD vs bank RD
| Feature | Post Office RD | Bank RD |
|---|---|---|
| Sovereign guarantee | Yes | No (DICGC up to ₹5L) |
| Rate source | Govt of India quarterly notification | Each bank individually |
| Rate stability | Protected for deposit year | May vary mid-term |
| TDS at source | No | Yes (>₹40K/yr; >₹50K for seniors) |
| Min deposit | ₹100/month | Varies (usually ₹500+) |
| Loan facility | After 12 months | Typically available |
| Network | 1.5L+ post offices | Bank branch/online |
Bridges
- Post Office FD calculator — compare with a one-time lump sum deposit at tenured rates
- Post Office MIS calculator — monthly income scheme for investors with a lump sum
- PPF calculator — long-term tax-free savings at 7.1% (EEE status)
- SIP calculator — equity mutual fund SIP projections for comparison