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A post office recurring deposit is a savings facility run by the Indian government's postal department. It involves depositing a fixed amount each month for five years, then receiving a lump sum back at the end, complete with interest. The plan is particularly aimed at people on low incomes looking for a simple and secure savings option.
Somebody opening a post office recurring deposit must invest at least 10 rupees to open the account. The saver must then deposit a fixed amount of his choice once a month for the next five years. There is no upper limit to the amount deposited, but it must be the same amount each month and must be a multiple of five rupees.
If the saver does not make the scheduled deposit by the end of a calendar month, a default fee is applied. This is 20 paise for every 10 rupees of scheduled deposit, with the fee charged each month until the deposit is made. 20 paise is 0.2 rupees. If the saver defaults a total five times, he will have two months to get up to date or the account will be discontinued.
Savers have the option of paying some of the deposits for the post office recurring deposit in advance and getting a rebate. This rebate is one rupee for every 10 rupees deposited if the saver pays six months' of deposits in advance. If the saver makes a year's worth of deposits in advance, the rebate is four rupees for every 10 rupees deposited.
There are some exceptions to the normal rule of paying in for five years before withdrawing the balance. After at least one year, the saver can withdraw up to half of the balance of the account in the form of a loan. This loan must later be repaid to the account along with an interest payment of 15%. The saver can also close the account after three years but will only get the interest rate that applies to a standard post office savings bank account, which will be lower than the post office recurring deposit offers.
Once the five year period is up, the saver can withdraw the full balance plus interest. This interest, as of 2010, was applied at a rate of 7.5% a year, calculated every quarter on a compound basis. The saver also has the option of leaving the account open for up to five more years, during which the account continues to earn interest. During this time, the saver can make further deposits, but this is not mandatory.