Post Office FDs offer more interest rates than bank FDs but come at a cost of liquidity. TD account can be closed prematurely by submitting the prescribed application form with passbook at concerned Post Office.1/2/3 years) for completed years, and for part period less than a year, PO Savings Interest rates will be applicable. If 2/3/5 year TD account prematurely closed after 1 year, interest shall be calculated 2 % less than of TD interest rate (i.e.If Time Deposit (TD) account closed after 6 months but before 1 year, PO Savings Account Interest rate will be applicable.No deposit shall be withdrawn before the expiry of six months from the date of deposit.Premature withdrawal: Interest loss greater in POTD than Bank FD The excess interest rate of Rs 49,860 i.e will be recovered from the principal amount of Rs 5 lakh. However, because the scheme was closed prematurely, the interest rate supposed to be received on investment will be Rs 17,351 at an interest rate of 3.5%. In the case cited above, the depositor was paid interest of Rs 34,351 every year at 6.7% per annum. In this case, loss is much more than premature withdrawal in case of bank deposits. But in case of closure due to financial distress or need, say after 3 years will reduce the maturity amount to just Rs 4,50,140 -an interest loss of 48% as per current rules. ![]() For example, an investment of Rs 5 lakh for a period of 5 years at 6.7% interest rate will earn an interest income of Rs 34,351 every year which is added to the principal. It is to be noted that premature withdrawal before the competition of the tenure severely impacts the interest income on investments. Interest rate calculation on premature withdrawal ![]() Withdrawal after 1 year, earn 1% less interest rate for the tenure opted for. On premature withdrawals after 6 months but before 1 year, the interest rate is reduced to 4%. It is to be noted, however, that closure or premature withdrawal is allowed only after 6 months of making the deposit. The POTD schemes are liquid despite the lock-in period on investments as the depositor can borrow against the deposit or withdraw the amount prematurely. However, once invested, interest rates remained unchanged for the entire tenure of investment. ![]() The interest rates on these are notified quarterly and are aligned to G-sec rates of similar maturity, with a spread of 0.25%. These are available for tenures of 1, 3 and 5 years. The interest is payable annually but calculated quarterly. The current rate of interest on POTD is 5.5% for a tenure of 1-years which means the amount will double in 13 years and for investment tenure of 6.7% the rate of return is 6.7%. Currently, return on POTD investments depends on the tenure selected.
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