Time Deposit
What is Time Deposit?
A Post-Office
Time Deposit Account (RDA) is a
banking service similar to a Bank Fixed Deposit offered by Department of post, Government of India at all post
office counters in the country. The scheme is meant for
those investors who want to deposit a lump sum of money for a fixed period; say
for a minimum period of one year to two years, three years and a maximum period
of five years. Investor gets a lump sum (principal + interest) at the maturity
of the deposit. Time Deposits scheme return a lower, but safer, growth in investment.
Features
Time Deposits can be made for the periods of 1 year, 2 years, 3 years and 5
years. The minimum investment in a post-office Time deposit is Rs 200 and then
its multiples and there is no prescribed
upper limit on your investment.
Account
may be opened by an individual, Trust, Regimental Fund and Welfare Fund. The account can be closed after 6 months
but before one year of opening the account. On
such closure the amount invested is returned without interest. 2 year,
three year and five year accounts can be closed after one year at a discount. They
involve a loss in the interest accrued for the time the account has been in
operation. Interest is payable annually
but is calculated on a quarterly basis at the prescribed rates. Post
maturity interest will be paid for a maximum period of
24 months at the rate applicable to individual savings account. One
can take a loan against a time deposit with the balance in your account pledged
as security for the loan.
Returns
This investment option pays annual interest rates
between 6.25 and 7.5 per cent, compounded quarterly. Time deposit for 1 year offers a coupon
rate of 6.25%, 2-year deposit
offers an interest of 6.5%, 3 years is 7.25% while a 5-year Time
Deposit offers 7.5% return.
|
Duration of Account |
Quarterly Compound Interest |
|
1year
2 years
3 years
5 years
|
6.25%
6.5%
7.25%
7.5% |
Advantages
In this scheme your
investment grows at a pre- determined rate with no risk involved. With a Government of India-backing, your principal
as well as the interest accrued is assured under the scheme.
The
rate of interest is relatively high compared to the 4.5% annual interest rates
provided by banks. Although the amount invested in this scheme is not exempted
as per section 88 of Income Tax, the
amount of interest earned is tax free under Section 80-L of Income Tax Act.
How to start a Time Deposit
A Time Deposit account can be opened at any post-office in the country.
Account may be opened by an individual, i.e., Single, Joint A/B (not more
than two adults) Trust, Regimental Fund and Welfare Fund. On opening a Time
Deposit, you will receive an account statement stating the amount deposited
and the duration of the account. The account can be closed after 6 months of
opening the account. On such closure the amount invested is returned with/without
interest depending on the time the deposit was maintained.
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