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Home / Saving Schemes

Post Office Small Saving Schemes

Tapping into the rural savings market has always been an urgent need since a long time now. The government had tried to bolster the small savings culture by offering a higher rate of savings than those proffered by scheduled banks.

The ministry has also spared no effort in utilising our country's extensive postal system by making even the smallest post-offices conduct common banking activities.

Interest rates offered by Post Office Savings Bank accounts are credited at 4.5 percent per annum for single and joint accounts, pensions, provident funds, superannuation and gratuity funds. The rate falls down to 4 percent in case of public and security deposit accounts related to purchase of vehicles and 3 percent on other security and official capacity accounts.

Post office accounts offer cheque facilities against accounts maintaining a minimum balance of Rs.250/- which is much lower than the minimum balance required by other banks. There is no restriction on the number of withdrawals but the upper limit on a single holding is set at Rs.50,000/- and joint holding is Rs.1,00,000/- The interest is completely tax-free thanks to Section 10. 

It might seem better to have a savings account with the local post office than a commercial bank. But the abysmally slow processing and performance rates at postal offices seem hardly likely to attract the average investor. 

Post Office Time Deposits require a minimum deposit sum of Rs.50/- and its multiples thereafter. Interest is compounded quarterly but paid on a yearly basis or after maturity. 

Premature closure is disallowed until the first six months have elapsed and no interest is payable until the end of the first year. After the first year, the interest amount shall be repaid with interest @ 2 percent below the corresponding trade discounted rate for the specific number of years.

On death, the account-holder's beneficiary has the option to continue or close the account. If the account is closed, then interest is paid as if it were closed prematurely. Both single and joint accounts can admit nominations.

Post Office Time Deposit Rates

For 5-year Recurring Deposits, the minimum installment is a measly Rs.10/month and the multiples are at Rs.5/- thereafter, payable before the end of the calendar month. On Advance Deposits, rebates are offered @ Re.1 for 6 to 11 deposits and @ Rs.4 for every 12 deposits. 

Under the Protected Savings Scheme, the Recurring Deposit holder can avail of a small life insurance policy. If a depositor in a single account or a surviving depositor in a joint account expires during the tenure of the account, his heir or nominee can get the full maturity value, subject to the ceiling of course.

In case the depositor has more than one account, then the ceiling is applicable to all accounts put together. The benefit is provided only if the death results after a minimum of two years after opening of the account. Additionally, the investor's age must be between 18 and 53 when opening the account, no withdrawals or defaults were committed during the first two years and the account was operational at the time of the depositor's demise.

Post Offices also offer a Monthly Income Scheme, which gives probably the highest returns among the schemes covered under Section 80(L). It also offers a terminal bonus of 10 percent. The scheme used to be useful for retired people but not any more owing to the possibility of converting an open-ended pure-growth scheme of UTI/ MFs into a pension plan. 

Premature withdrawals are allowed after one year although a penalty of 5 percent is deducted if withdrawals are effected within 3 years. In case of the death of the depositor prior to maturity, the account can be closed and the deposit refunded with interest to the nominee/ legal heir. In case the interest paid every month is not claimed by the depositor, then no overdue interest is payable on such interest. 

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