Post Office Schemes: How much and where to invest to get Rs 5 lakh in 5 years

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Updated: March 9, 2019 8:40:10 AM

Post Office savings schemes are very popular among investors because of the protection through sovereign guarantee and attractive interest rates, provided by the Government of India.

Post Office, Post Office deposits, Post Office schemes, Post Office Savings Accounts, POSAs, Post Office Time Deposits, FDs, Recurring Deposits, RDs, Monthly Income Schemes, MIS, Senior Citizen Savings Schemes, SCSS, National Savings Certificates, NSCs, Kisan Vikas Patra, KVP, Public Provident Fund, PPF, Sukanya Samriddhi Yojana, SSYDue to the reach of Post Offices in rural and far flung areas, the Post Office schemes become very popular among rural investors also.

Post Office savings schemes are very popular among investors because of the protection through sovereign guarantee and attractive interest rates, provided by the Government of India. Moreover, due to the reach of Post Offices in rural and far-flung areas, the Post Office schemes have become very popular among rural investors also.

Apart from Post Office Savings Accounts (POSAs), other schemes offered by Post Office are – Post Office Time Deposits or FDs, 5-year Recurring Deposits (RDs), Monthly Income Schemes (MIS), 5-year Senior Citizen Savings Schemes (SCSS), 5-year National Savings Certificates (NSCs), Kisan Vikas Patra (KVP), Public Provident Fund (PPF) and Sukanya Samriddhi Yojana (SSY). The Time Deposits offered by Post Office are of the duration of 1 year, 2 years, 3 years and 5 years.

The following table contains the current interest rates on the schemes offered by Post Office:

Interest rates on Post Office schemes

Out of the above post office schemes, the 5-year schemes that may be used to accumulate Rs 5 lakh are 5-year Post Office Time Deposits or FDs, Recurring Deposits (RDs), Senior Citizen Savings Schemes (SCSS) and National Savings Certificates (NSCs). Now, let’s analyse the schemes and see how much to invest to accumulate Rs 5 lakh during the investment period of 5 years, assuming that the current rate of interest will remain unchanged during the period.

5-year Post Office Time Deposits

A 5-year Post Office Time Deposit account may be opened by an individual or by two individuals jointly through cash or cheque. A single account can be converted into a joint account and vice versa. An account may also be opened in the name of a minor. A minor of 10 years and above age can open and operate the account, but has to apply for conversion of the account in his name on attaining majority age.

The minimum amount required to open an account is Rs 200 and deposits may be made in multiple of Rs 200, without any maximum limit. The interest on time deposit accounts is paid annually, but is calculated quarterly.

Assuming that the current annual interest rate of 7.8 per cent compounded quarterly on 5-year deposits will remain unchanged, Rs 3,39,802 or Rs 3.4 lakh (rounded of to higher multiple) need to be invested to accumulate Rs 5 lakh in 5 years.

5-year Recurring Deposits (RDs)

Recurring Deposit is suitable for people, who are not in a position to invest a large amount at a time. The process of opening an RD account is similar to opening a time deposit account. However, the minimum amount needed to open an RD account is Rs 10 and investments may be made in multiple of Rs 5, without any maximum limit. The interest on RD accounts is also paid annually, but is calculated quarterly.

Assuming that the current annual interest rate of 7.3 per cent compounded quarterly on 5-year RDs will remain unchanged, Rs 6,896 or Rs 6,900 (rounded of to higher multiple) need to be invested at the beginning of every month to accumulate Rs 5 lakh in 5 years.

5-year Senior Citizen Savings Scheme (SCSS)

An individual of the age of 60 years or more may open and operate more than one Senior Citizen Savings Scheme (SCSS) account in individual capacity or jointly with spouse (husband/wife). However, there shall be only one deposit in an account in multiple of Rs 1,000, with the limit on maximum investment of Rs 15 lakh taking all the accounts together. An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under voluntary retirement scheme (VRS) can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits.

The interests on SCSS accounts are also paid annually, but calculated quarterly.

Assuming that the current annual interest rate of 7.8 per cent compounded quarterly on SCSS will remain unchanged, Rs 3,25,145 or Rs 3.26 lakh (rounded of to higher multiple) need to be invested to accumulate Rs 5 lakh in 5 years.

5-year National Savings Certificates (NSCs)

NSCs are one of the popular tax-saving investment options, which is eligible for tax deduction u/s 80C. A single holder type certificate can be purchased by, an adult for himself/herself or on behalf of a minor or by a minor. The interest accrues annually but is deemed to be reinvested under Section 80C of the Income Tax Act.

The minimum amount invested in NSC is Rs 100 and in multiple of Rs 100, with no maximum limit. The interests on NSC are compounded annually but are payable at maturity.

Assuming that the current annual interest rate of 7.8 per cent compounded quarterly on NSCs will remain unchanged, Rs 3,40,292 or Rs 3,40,300 (rounded of to higher multiple) need to be invested to accumulate Rs 5 lakh in 5 years.

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