A festival every year, an RD that runs 5 years
A post office RD cannot be closed before 3 years, so it does not suit money Selvi wants back every Deepavali. For that, a 1-year bank RD fits better. At 6.7%, a 1-year RD of ₹1,000 a month gives ₹12,442, which is ₹442 of interest. Bank RDs for one year pay somewhere around 6 to 7% now, which would mean ₹12,395 to ₹12,462. These rates are only examples, what you get depends on the bank.
Five such 1-year RDs earn about ₹2,210 of interest in total. One 5-year post office RD earns ₹11,366, which is ₹9,156 more. The extra comes from leaving the money in longer, not from a better rate. So for Selvi the festival money goes into a 1-year RD, and only money she needs 5 years from now belongs in the post office RD.
Frequently asked questions
How much will ₹1,000 a month give in a post office RD after 5 years?
At 6.7% compounded every quarter, ₹1,000 a month for 60 months matures at about ₹71,366. You deposit ₹60,000 and earn ₹11,366 as interest. If the rate changes before you open the account, these figures change too.
What if I miss a ₹1,000 instalment?
The post office charges a default fee of ₹1 for every ₹100 of the instalment, so ₹10 for each missed month, paid along with the missed deposit. After 4 missed instalments the account is discontinued, but it can be revived within 2 months of the fourth miss. Check the current rules at your post office.
Can I take money out of a post office RD before 5 years?
Premature closure is allowed only after 3 years, and then interest is paid at the lower post office savings account rate, not 6.7%. After 12 instalments you can instead take a loan of up to half the balance, at 2% above the RD rate.
What does ₹1,000 a month become in 10 years?
A post office RD can be extended for another 5 years once it matures. At the same 6.7%, ₹1,000 a month for 120 months comes to about ₹1,70,855. Deposits double to ₹1,20,000, but the interest grows to ₹50,855, close to 4.5 times the 5-year interest.
