Average yearly return of top performing debt mutual funds recommended by Scripbox
|Funds||Yield to Maturity|
|Tata Liquid Fund||7.37%|
|Kotak Savings Fund||7.37%|
|ICICI Prudential Savings Fund||8.06%|
What is a Post Office RD Calculator?
Post Office RD calculator is an online tool that helps in estimating the maturity amount and interest amount of an RD investment. By calculating the returns from a Post Office RD investment, one can make informed financial decisions.
Post Office recurring deposit is one of the post office savings schemes. It allows investors to invest in small amounts regularly. The minimum investment tenure of a PORD is five years. The interest in PORD is compounded quarterly. Calculating the interest in PORD manually can be time taking and difficult. Hence one can use a Post Office RD calculator to estimate their potential returns.
Below are the features of an RD:
- It is a post office savings scheme.
- The minimum amount of investment is INR 10 and in multiples of INR 5.
- There is no cap on the maximum amount of investment.
- The investment tenure is five years.
- Interest is compounded quarterly.
- The account can be operated solely and jointly.
- Nomination facility is available.
- The account is easily transferable from one post office to another.
- One can get a rebate on paying six months of instalments in advance.
- Closure of account prematurely is possible after 3 years.
- One can withdraw 50% of the amount after the completion of 1 year.
- Missed deposits will attract a default fee.
- One can extend a post office recurring deposit account for five years on a year to year basis.
To calculate the maturity value of a PORD, one can use the formula below:
Where M = Maturity amount
R = Monthly Instalment
N = number of quarters (tenure)
i = Rate of interest/400
Let's take an example of a person Mr Anirudh Rathi who is planning to invest INR 1,000 per month in a PORD. The interest he is expecting is 5.8% per annum. Since the tenure of PORD is five years or 20 quarters. The maturity value for Mr Rathi will be
Maturity value is INR 69,697. The investment amount is INR 60,000. The interest earned is INR 9,697.
Inputs in Post Office RD Calculator
A Post Office RD calculator will have the following inputs:
Monthly Deposit Amount: It is the investment amount one wishes to invest in post office RD accounts. The minimum amount of investment for Post Office RD is INR 10 and in multiples of INR 5.
RD Term: This is the investment tenure of the Post Office RD scheme. A PORD has a fixed tenure of 5 years (60 months).
Recurring Deposit Interest Rate: It is the rate of return that the recurring deposit schemes offer to the account holder. The current rate of return is 5.8% (April-June 2020).
Upon entering the above inputs, the calculator will give the following outputs:
Total Investment: It is the total amount invested by the account holder over a period of 60 months.
Wealth Gained: It is the interest income the investor has earned on the investment.
Total Corpus Created: It is the total of total investment and wealth gained. It is the future value of all the investments done during the term of 5 years.
How to use a Post Office RD Calculator?
One can use the Post Office RD calculator online for free. The calculator is a simple tool and quite easy to use. All that one has to do is enter details such as monthly investment amount and Post Office RD interest rate. This helps in determining the maturity value. The calculator automatically computes the wealth created from an investment. Furthermore, the RD calculator uses the future value formula to determine the maturity value. The following example may help in understanding the Post Office RD calculator better.
Ms Sana plans to invest INR 15,000 per month in a recurring deposit scheme for ten years. The Post Office RD rate is 5.80%. The maturity value of the investment for Ms Sana using the Post Office RD calculator is:
Inputs for the Post Office RD calculator:
- Monthly investment amount: INR 15,000
- Post Office Recurring Deposit Interest Rate: 5.80%
- RD Term: 10 years
The following are the outputs from the calculator:
- Total Investment: INR 18,00,000
- Wealth Gained: INR 6,39,714
- Total Corpus Created: INR: 24,39,719
The investment of INR 18,00,000 made today at 5.80% interest per annum would be INR 24,39,714 in five years. The interest income for Ms Sana will be INR 6,39,714.
Benefits of using a Post Office Recurring Deposit Calculator
The following are the benefits of using a Post Office Recurring Deposit Calculator:
Free to use: The calculator is available online and is free to use by anyone. One can use it multiple times without paying a single rupee for it.
Simple and easy to use: The PORD calculator is a simple tool. One can easily enter the required details to get the output.
Accurate results: The calculator gives results that are quite accurate, and the chance of error is close to zero. One can easily rely on the results of the calculator.
Saves time: Calculating the interest on an RD investment can be taxing and time taking. Using the PORD calculator to do the same, saves the time of the investor.
Comparison: One can use the calculator to compare multiple banks RD with the Post Office RD and select the one that gives the highest return.
Future planning: The calculator enables investors to plan their investments more efficiently. By knowing the potential returns from an investment, will help investors plan their goals better.
Factors affecting PO interest rates
POFD interest rates depend on the following factors:
The Cash Reserve Ratio (CRR) and repo rate affect the interest rate of all banking instruments, including recurring deposits RD.
State of economy
In a growing economy, people take more credit. To meet the credit demand and increase the funds, banks often increase interest rates of recurring deposits RD. During a recession, RBI induces liquidity into the market by releasing funds. With high liquidity and low credit demand, banks RD interest rates are reduced.
RD rates tend to be higher when the inflation rate in the economy is rising.
Types of Post Office RD accounts
On the basis of the investment tenure, following are the types of recurring deposits:
Short Term RD
The recurring deposit tenure ranges between six months to three years. Therefore, short term recurring deposit best suits investors looking to develop saving habits.
Medium Term RD
Investors not willing to invest for a long term, medium term recurring deposit best suits them. Medium-term RD provides the right balance of investment duration and flexibility to invest to its investors. The tenure for these deposits ranges between three years to seven years.
Long Term RD
Long term recurring deposits have a tenure ranging between seven years to ten years. The scheme gives investors the flexibility of making monthly deposits. Therefore, the scheme best suits investors who do not have a lump sum amount to invest in a fixed deposit.
Current Post Office RD interest rates
Post Office RD rates are decided by the Government every quarter. The historic interest rates of Post Office RD are:
The Government sets the interest rate of Post Office RD, and they are announced every quarter. The interest in PORD is compounded every quarter. The investor will receive the interest amount directly at the time of maturity along with the lump sum investment amount. The interest earned is not subject to TDS. However, the interest earned on PORD is taxable in the hands of the investors at their respective tax slabs.
|Quarter 1 – April 2020 to June 2020||5.8%|
|Quarter 4 - Jan 2020 to Mar 2020||7.2%|
|Quarter 3 - Oct 2019 to Dec 2019||7.2%|
|Quarter 2 - Jul 2019 to Sep 2019||7.2%|
|Quarter 1 - Apr 2019 to Jun 2019||7.3%|
|Quarter 4 - Jan 2019 to Mar 2019||7.3%|
|Quarter 3 - Oct 2018 to Dec 2018||7.3%|
|Quarter 2 - Jul 2018 to Sep 2018||6.9%|
|Quarter 1 - Apr 2018 to Jun 2018||6.9%|
|Quarter 4 - Jan 2018 to Mar 2018||6.9%|
|Quarter 3 - Oct 2017 to Dec 2017||7.1%|
|Quarter 2 - Jul 2017 to Sep 2017||7.1%|
|Quarter 1 - Apr 2017 to Jun 2017||7.2%|
|Quarter 4 - Jan 2017 to Mar 2017||7.3%|
|Quarter 3 - Oct 2016 to Dec 2016||7.3%|
|Quarter 2 - Jul 2016 to Sep 2016||7.4%|
|Quarter 1 - Apr 2016 to Jun 2016||7.4%|
What is the eligibility criteria for opening a PORD account?
Following is the eligibility criteria for opening RD accounts in India
- All Indian nationals over the age of 18 can open a Post Office Recurring Deposit account.
- Minors of age ten and above can open and operate the account jointly with a guardian.
- Parents or guardians can open this account on behalf of a minor child.
What are the documents required to open an RD account?
While opening a recurring deposit account, the following are the list of documents required:
- Account opening form (filled and duly signed)
- Recent passport size photograph
- KYC Documents
- Individual & Company: PAN Card, Passport Copy, Aadhar Card, Voter's ID, and Driving License
- HUFs: HUF declaration deed, bank statement of HUF, and self-attested PAN card
- Partnership Firms: Certificate of Incorporation, Partnership deed, and ID proofs of all authorized signatories.
Post Office RDs offer guaranteed returns. However, their returns are lower than debt mutual funds. Instead of Post Office RDs, investors can choose good debt funds which have higher returns at the same time have high liquidity. Additionally, the returns from debt funds are predictable making them an attractive investment option for short term investment.
Frequently Asked Questions
Investment in Post Office Recurring Deposit (PORD) qualifies for tax deduction up to INR 1,50,000 under Section 80C of the Income Tax Act. The interest income doesn’t attract any TDS. However, income earned will be taxable in the hands of investors as per their respective income tax slabs.
One can withdraw the investment in RD amount only at the time of maturity. In case there is an emergency, one can break their RD investment. The Post Office charges INR 1 for every INR 100 investment. Banks usually deduct 1-2% from the interest accrued. Once the amount has been withdrawn, the account will be considered as closed. There is a minimum lock-in period of 3 months. If the premature withdrawal is requested before this period, then the investor will not earn any interest and will only get the principal amount back.
Indian Post Offices do not allow partial withdrawal of the RD account. However, most of the banks allow partial withdrawal on RD investment. Additionally, one can avail loan against their banks recurring deposit investment.Post Offices allow premature withdrawals, provided an investor has an RD account that is at least one year old. The amount withdrawn is considered as a loan and must be paid back in a lump sum to the Post Office. However, the Post Office allows premature closure of RD accounts with a penalty.
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