Conceptual · Article 2.1.6.6
Post Office Recurring Deposits.
Fixed Monthly Saving. Sovereign Guarantee. Five-Year Anchor.
Published as on 29 June 2026
A Post Office Recurring Deposit (PORD / National Savings Recurring Deposit) is a 5-year contract with the Government of India: deposit a fixed amount every month (minimum ₹100, no upper limit), and receive a guaranteed lump sum at maturity. The rate (6.7% p.a. as of February 2026) is set quarterly by the Ministry of Finance, compounded quarterly, and locked for your full tenure once you open. Backed by sovereign guarantee, not DICGC. Interest is fully taxable at your slab rate — no 80C benefit. The disciplined small-saver's safe anchor, not a wealth-builder.
6.7% p.a.
Rate (Feb 2026)
5 years
Fixed Tenure
₹100/mo
Minimum, No Cap
Slab Rate
Interest Taxed
Executive Summary · Page 2
Executive Summary · 6 Findings
A Post Office RD answers one question: how do I save a fixed sum every month, with certainty, and have an exact rupee amount waiting in five years? Deposit ₹2,000/month at 6.7% and you receive about ₹1,42,722 after 60 instalments — ₹1,20,000 of your own money plus ₹22,722 interest. Sovereign-backed, predictable, deliberately low-drama. A Bucket-1 safety tool, not a growth engine.
Covers how the scheme works and why it exists, the quarterly-compounding maturity math, the missed-instalment default fee and discontinuation rule, the loan and premature-closure facilities, slab-rate taxation and TDS, comparison vs bank RD and PPF, seven common mistakes, and the suitability framework for disciplined small-savers.
Key Findings
A 5-year contract with the Government of India.
Fixed monthly deposit (min ₹100, no cap) for exactly 60 instalments. The rate is set quarterly by the Ministry of Finance and locked at opening for your full tenure. Backed by sovereign guarantee — not DICGC's ₹5L cap. Runs through India Post's 1.5 lakh-plus branch network, reaching where banks often don't.
6.7% p.a., compounded quarterly. Maturity is math, not magic.
Interest accrues quarterly, not monthly. ₹2,000/month at 6.7% grows to ~₹1,42,722 over 5 years (₹1,20,000 deposited + ₹22,722 interest). Post offices publish pre-computed maturity tables — you never calculate by hand.
Miss instalments and there's a fee — miss 6+ and it discontinues.
Default fee: ₹1 per ₹100 of the instalment per month of default (₹20 on a ₹2,000 instalment for one month). A 4-day grace beyond the 15th is typical. More than 6 defaults → account "Discontinued"; revivable within 2 months by paying arrears plus penalty, else no further deposits allowed.
Loan after 12 instalments; premature closure only after 3 years.
Loan up to 50% of balance at RD rate + 2% (~8.7%) — RD keeps running. Premature closure allowed only after 3 years, and interest then reverts to the 4% savings-account rate. No partial withdrawals: it's the loan, full closure, or hold to maturity.
Interest is fully taxable at your slab. No 80C, no exemption.
Interest is "Income from Other Sources" taxed at your slab rate. Deposits don't qualify for Section 80C (unlike PPF/NSC); interest isn't exempt (unlike PPF). TDS if total post-office interest exceeds ₹40,000/yr (₹50,000 for seniors), cumulative across RD + TD + MIS + SCSS. Form 15G/15H avoids TDS if not liable.
A Bucket-1 safety anchor — not an inflation-beater.
At 6.7% nominal against ~4.8% CPI, the real return is only ~1.9%. Right for a known rupee amount on a fixed 5-year horizon (school fees, car down-payment); wrong as an emergency fund, retirement corpus, or SIP substitute. Boring by design is the point.
At A Glance
| Metric | Value | Detail |
|---|---|---|
| Tenure | 5 years (60 instalments) | Extendable |
| Rate (Feb 2026) | 6.7% p.a. | Quarterly compounded |
| Minimum | ₹100/month | No upper limit |
| Backing | Sovereign guarantee | Not DICGC |
| Loan facility | After 12 instalments | Up to 50%, rate+2% |
| Default fee | ₹1 / ₹100 / mo | 6+ defaults discontinue |
| Premature close | After 3 yr @ 4% | Savings-account rate |
| Tax | Slab rate | No 80C; TDS >₹40K |
Exhibit 01: ₹2,000/month at 6.7% — Year-by-Year
| Year | Deposited | Total Value |
|---|---|---|
| 1 | ₹24,000 | ₹24,868 |
| 2 | ₹48,000 | ₹51,534 |
| 3 | ₹72,000 | ₹80,054 |
| 4 | ₹96,000 | ₹1,10,545 |
| 5 | ₹1,20,000 | ₹1,42,722 |
Quarterly compounding at 6.7% locked rate. Of the ₹1,42,722 maturity, ₹1,20,000 is your own deposits and ₹22,722 is interest. Real purchasing power after ~4.8% inflation is closer to ₹1,13,000 in today's money — use this for fixed rupee goals, not wealth creation.
The Opening · Page 3
The Opening
A Post Office Recurring Deposit is a structured monthly savings contract you sign with the Government of India through India Post. You commit a fixed amount every month for exactly five years; the government locks a fixed interest rate at opening, compounds it quarterly, and pays a guaranteed lump sum at maturity. It exists to make regular saving automatic — turning "I'll save whatever is left" into a fixed, accountable habit, with a small default fee creating discipline and a sovereign guarantee replacing the risk of informal chit funds.
"The scheme's power is behavioural, not financial. The mandatory monthly instalment removes the discipline problem; the 5-year lock removes the temptation problem. You are not buying a high return — you are buying certainty about a specific rupee amount on a specific future date."
The Anchor-Not-Engine Frame
The mathematics. Rate 6.7% p.a. (Feb 2026), compounded quarterly, locked for the full term. ₹2,000/month becomes ~₹1,42,722 over 5 years; ₹5,000/month at 6.7% reaches roughly ₹3.57 lakh (₹3 lakh deposited + ~₹57,000 interest). Maturity uses MV = P × [(1 + r/4)^(4n) − 1] / (1 − (1 + r/4)^(−1/3)), but post offices publish ready-reckoner tables so you never compute it yourself.
Feb 2026 context. The Ministry of Finance reviews small-savings rates each quarter (typically late March, June, September, December); revisions apply only to new accounts, never your locked one. Account opening still needs an in-person KYC visit, but ~99% of the journey — deposits via passbook QR scan, balances, projections — runs on the India Post Payments Bank (IPPB) app.
Structure
Part I
How It Works, Why It Exists, Maturity Math
Part II
Defaults, Loan, Premature Closure, Tax & TDS
Part III
vs Bank RD, vs PPF, Seven Mistakes, Suitability
Part IV
The Verdict: A Safe Anchor, Not a Growth Tool
Use If
✓ Specific goal ~5 years away
✓ Known rupee target needed
✓ Want sovereign safety + discipline
✓ Emergency fund already separate
Do NOT Use If
✕ Income is irregular
✕ Need money in <3 years
✕ Building long-term wealth
✕ Need partial withdrawals
Part I
How the Scheme Works, Why It Exists, and the Maturity Math
The monthly deposit cycle and grace period, quarterly compounding that makes maturity a precise number, and why the government built a sovereign-backed discipline tool reaching 1.5 lakh-plus post offices nationwide.
Part I · Page 4
The Two-Sided Contract
| You commit | Government commits |
|---|---|
| Fixed amount monthly | Rate locked at opening |
| Min ₹100, no cap | Quarterly compounding |
| 60 instalments / 5 yr | Guaranteed lump sum |
| Deposit by 15th | Sovereign guarantee |
Why the Government Built It
Three Purposes
1. Enforce discipline: the mandatory instalment + default fee remove the "save what's left" problem.
2. Replace informal saving: sovereign backing instead of chit funds or cash at home.
3. Fund 5-year goals: school fees, vehicle down-payment, wedding, renovation, emergency-corpus building — via 1.5 lakh-plus branches reaching rural and semi-urban India.
Monthly Deposit Cycle
Due by the 15th of each month, with a typical 4-day grace.
Advance deposits for 6–12 months are allowed (regular interest, no bonus).
Digital path: first KYC visit is physical; thereafter deposit via IPPB by scanning the passbook QR code. Reminders before the 15th help prevent defaults.
Opening — Quick Steps
| Step | Action |
|---|---|
| 1 | Visit post office with Aadhaar + PAN (KYC) |
| 2 | Choose monthly amount; rate locks for 5 yr |
| 3 | Multiple accounts allowed, different amounts |
| 4 | Manage via IPPB app thereafter |
Quarterly Compounding — ₹2,000/mo @ 6.7%
| Year | Deposited | Interest (cum.) | Value |
|---|---|---|---|
| 1 | ₹24,000 | ₹868 | ₹24,868 |
| 2 | ₹48,000 | ₹3,534 | ₹51,534 |
| 3 | ₹72,000 | ₹8,054 | ₹80,054 |
| 4 | ₹96,000 | ₹14,545 | ₹1,10,545 |
| 5 | ₹1,20,000 | ₹22,722 | ₹1,42,722 |
The Maturity Formula
MV = P × [(1 + r/4)^(4n) − 1] / (1 − (1 + r/4)^(−1/3))
P = monthly deposit r = annual rate (decimal) n = years.
The r/4 term and 4n exponent reflect quarterly compounding — interest is added every three months, not monthly. You never compute this manually; post offices issue pre-calculated maturity tables.
Worked Example — ₹5,000/mo
✓ Deposited: ₹3,00,000 over 60 months
✓ Interest @ 6.7%: ~₹57,000
✓ Maturity: ~₹3.57 lakh
Note: the locked rate means this number is fixed at opening, immune to later quarterly revisions.
Part II
Defaults, Loans, Premature Closure, and Taxation
What the ₹1-per-₹100 default fee really costs and when an account is discontinued, why a loan against the RD usually beats premature closure, and why interest is fully taxable at your slab with TDS above ₹40,000.
Part II · Page 6
Missed Instalments
Default Fee & Discontinuation
Fee: ₹1 per ₹100 of the instalment per month of default (₹20 on ₹2,000 for one month). A 4-day grace beyond the 15th is typical.
Critical: more than 6 defaults makes the account "Discontinued". Revive within 2 months by paying arrears + penalty, else no further deposits — the account matures with only what was paid.
Loan vs Premature Closure
Loan After 12 Instalments
Borrow up to 50% of balance (principal + accrued interest) at RD rate + 2% (~8.7%). Repay before maturity and the RD matures at the full rate, unaffected.
Premature closure is allowed only after 3 years (36 instalments), and interest then drops to the 4% savings-account rate — a steep haircut.
Closure Penalty — ₹2,000/mo
| Timing | @6.7% | @4.0% (premature) |
|---|---|---|
| After 3 yr | ₹8,054 | ₹4,680 |
| After 4 yr | ₹14,545 | ₹8,640 |
| Full 5 yr | ₹22,722 | — |
No partial withdrawals. It's loan, full closure (after 3 yr), or hold. The drop from 6.7% to 4% is roughly a 40% cut in interest — usually the loan is cheaper.
Taxation (FY 2025-26)
| Item | Treatment |
|---|---|
| Interest | Fully taxable, slab rate |
| Head | Income from Other Sources |
| 80C on deposits | Not available |
| Interest exemption | None (unlike PPF) |
| TDS threshold | >₹40K (₹50K seniors) |
How TDS Works
The ₹40,000 / ₹50,000 threshold is cumulative across all post-office schemes (RD + TD + MIS + SCSS). Below the taxable limit but interest crosses the threshold? Submit Form 15G (under 60) or Form 15H (seniors) so no TDS is deducted — you still declare the interest in Schedule OS of your ITR. Form 16A is issued if TDS was deducted.
Worked Example — Ramesh, 30% Bracket
✓ ₹5,000/month RD; interest FY25-26 ₹21,000
✓ Added to ₹12L salary → taxed at 30% = ₹6,300
✓ No TDS (below ₹40K); paid while filing ITR
Regime & 87A Note
Interest is added to income under both regimes and taxed at slab. Under the new regime, total income ≤ ₹7L gets the full Section 87A rebate — but RD interest counts toward that ₹7L. Cross it by even ₹1 and the rebate is lost, though marginal relief typically softens the cliff.
Part III
Bank RD, PPF, Seven Mistakes, and Who It Suits
Where the Post Office RD beats and loses to a bank RD and to PPF, the seven errors small-savers repeatedly make, and a clear suitability test for matching the instrument to a real 5-year goal.
Part III · Page 8
vs Bank RD
| Feature | Post Office RD | Bank RD |
|---|---|---|
| Issuer | Govt of India | Banks |
| Tenure | Fixed 5 yr | 6 mo–10 yr |
| Rate (Feb 26) | 6.7% | 6.5–7.5% |
| Minimum | ₹100/mo | ₹500–1,000 |
| Backing | Sovereign | DICGC ≤₹5L |
Choose PO RD for explicit sovereign backing, rural access, fixed discipline. Choose bank RD for tenure flexibility, full digital convenience, or senior-citizen rates up to ~7.75%. Tax treatment is identical (slab rate).
vs PPF (Long-Term)
| Feature | PO RD | PPF |
|---|---|---|
| Tenure | 5 yr | 15 yr |
| Rate | 6.7% | 7.1% |
| 80C | None | Yes |
| Interest tax | Slab | Tax-free |
| Post-tax (30%) | 4.69% | 7.1% |
PPF wins for 15+ year wealth (EEE, tax-free, ~2.4% higher post-tax). RD wins for a fixed 5-year goal where PPF's lock-in doesn't fit, or after maxing the ₹1.5L PPF limit.
Seven Common Mistakes
Comparing returns with equity SIPs
Different jobs: RD is 5-year capital preservation, SIP is 7–10-year wealth creation. Match the tool to the goal timeline, not to a friend's headline return.
Ignoring inflation
6.7% minus ~4.8% CPI = ~1.9% real. ₹1.42L maturity ≈ ₹1.13L in today's money. Use only where the rupee figure matters, not purchasing power.
Using it as an emergency fund
3-year lock-in before any closure. A Year-2 emergency forces an 8.7% loan against your own money. Keep emergencies in a savings/liquid fund.
Over-allocating to "safe" products
100% in RD/FD/PPF young means missing equity compounding. Roughly 20–30% safety at 25–35, rising with age; keep growth allocations separate.
Opening RDs without a purpose
"Just because it's safe" locks money for 5 years while real needs arise elsewhere. Tie every RD to one specific, dated goal.
Misreading rate revisions
Quarterly revisions apply only to new accounts. Your locked rate never changes mid-tenure — protecting you from cuts, but also from hikes.
Forgetting discontinuation risk
The ₹1/₹100 fee feels tiny, but 6+ defaults discontinue the account. Automate via IPPB standing instructions to stay safe.
Who It Suits
| Good fit | Reconsider |
|---|---|
| Specific 5-yr goal | Flexible / uncertain timeline |
| Known rupee target | "Building wealth" aim |
| Stable monthly income | Irregular income |
| Wants sovereign safety | Needs partial liquidity |
Part IV
The Verdict
A safe anchor by design. Not a growth tool.
Part IV: The Verdict · Page 10
30-Second Summary
A Post Office Recurring Deposit is a 5-year, sovereign-backed monthly savings contract: fixed instalment (min ₹100, no cap), rate set quarterly by the Ministry of Finance and locked at opening (6.7% p.a. Feb 2026), compounded quarterly. ₹2,000/month yields ~₹1,42,722 at maturity. Miss 6+ instalments and the account is discontinued; a ₹1-per-₹100 default fee applies meanwhile. Loan up to 50% after 12 instalments; premature closure only after 3 years at the 4% savings rate.
Interest is fully taxable at your slab — no 80C, no exemption — with TDS above ₹40,000 (₹50,000 for seniors) cumulative across post-office schemes. At ~1.9% real return it preserves capital, it doesn't grow it. Right for a known rupee goal exactly five years out; wrong as an emergency fund, retirement corpus, or SIP substitute. For long-term tax-free wealth, PPF is structurally better; for tenure flexibility, a bank RD. The boring certainty is the entire value proposition.
"The Post Office RD is about certainty, not yield. It will never make you rich, and it was never meant to. It promises one thing — an exact rupee amount, on an exact date, guaranteed by the sovereign — and it keeps that promise with quiet reliability. For a disciplined small-saver with a fixed five-year goal, that quiet reliability is worth more than a percentage point of return chased elsewhere."
The Final Orientation
ADWIZR · June 2026
Decision Rules
Use Correctly As
✓ Fixed 5-year goal anchor
✓ Sovereign-safe Bucket-1 saving
✓ Discipline via auto-deposit
✓ Known rupee target
Misuse Destroys Value
✕ Emergency fund
✕ Long-term wealth / retirement
✕ Irregular-income saver
✕ Inflation-beating goal
Triggers to Reassess
When to Rethink the RD
(1) Income turns irregular — default and discontinuation risk rises; pause new RDs. (2) Horizon shrinks below 3 years — lock-in traps you; prefer a flexible bank RD or liquid fund. (3) Unused 80C room + 15-yr goal — PPF is more tax-efficient. (4) Bank/senior rates clearly exceed 6.7% — compare before opening a fresh account.
Investor FAQ
Questions Indian Savers Ask
Seven questions, answered directly.
Investor FAQ · Page 12
Frequently Asked Questions
Q1 Can I open a Post Office RD online?
Q2 What if I miss several instalments — does the account close automatically?
Q3 Does a quarterly rate change affect my existing RD?
Q4 Loan against the RD or premature closure?
Q5 How do joint accounts and nomination work?
Q6 Can NRIs open a Post Office RD?
Q7 Post Office RD or PPF for the long term?
Key Terms & Definitions
Post Office RD (PORD)
The National Savings Recurring Deposit: a 5-year contract with the Government of India to deposit a fixed amount monthly (min ₹100, no cap) and receive a guaranteed lump sum at maturity. Rate set quarterly by the Ministry of Finance, locked at opening, compounded quarterly.
Quarterly Compounding
Interest is calculated and added to the balance every three months rather than monthly or annually. This is reflected in the maturity formula's r/4 rate term and 4n exponent, and is why post offices publish pre-computed maturity tables.
Sovereign Guarantee
The repayment promise is backed directly by the Government of India, unlike bank deposits which are insured only up to ₹5 lakh by DICGC. This gives the PORD the highest tier of capital safety available to a retail saver.
Default Fee & Discontinuation
A penalty of ₹1 per ₹100 of the instalment per month of default. More than six defaults make the account "Discontinued" — revivable within two months by paying arrears plus penalty, otherwise no further deposits are permitted.
Premature Closure
Closing the RD before the 5-year maturity, permitted only after 3 years (36 instalments). Interest is recomputed at the Post Office Savings Account rate (currently 4%), a significant reduction from the RD rate. No partial withdrawals are allowed.
TDS Threshold (Form 15G/15H)
TDS is deducted if total interest across all post-office schemes (RD + TD + MIS + SCSS) exceeds ₹40,000/yr (₹50,000 for seniors). Submit Form 15G (under 60) or Form 15H (seniors) to avoid TDS if you are not liable to tax — interest must still be declared in the ITR.