RD Premature Closure

Premature Closure Rules for Post Office RD 

The premature closure rules for the Post Office Recurring Deposit (RD) are as follows: 

• Premature closure can be done with the post office three years after opening the RD account, as per the regulations of the Department of Posts. 
• Suppose the RD account is closed before its maturity date, even by a single day. In that case, the interest rate applicable will be based on the post office savings account rate instead of the RD interest rate. 
• The RD account cannot be closed prematurely if there are advance deposits made, and the closure is not permissible until the period for which the advance deposits have been paid is completed. 
• You might incur penalties (0.5% to 1%) of the applicable interest rate for premature closure. 

How to Prematurely Close the Post Office RD Account? 

You can close your post office RD account before maturity by following the steps given below: 

Online Process  

Step 1: Visit the official website of India Post and log in with your Internet Banking ID and password.  

Step 2: Verify the information by entering OTP that you get on your registered mobile number.  

Step 3: Go to ‘General Services’ and select ‘Service Requests’.  

Step 4: Click on ‘New Requests’ and select the option ‘Closure/Pre-closure of RD Account’.  

Step 5: Enter your RD account details and select your savings account for credit.  

Step 6: Submit the request using your transaction password.  

Step 7: Save the reference number for tracking.  

Step 8: The amount will be credited to your savings account within 24 hours after processing. 

Offline Process 

Step 1: Visit the post office branch where you opened your RD account and take passbook along with you.  

Step 2: Fill out the Form-2 for premature closure.  

Step 3: Submit the completed form along with your passbook to the post office staff.  

Step 5: Collect the acknowledgment receipt after submission.  

Step 6: The amount will be credited to your savings account in a few days after processing. 

Documents Required  

To withdraw or close your RD account, you need to submit a few important documents and details for verification. These are as follows:  

• Valid ID proof such as Aadhaar card, PAN card, or voter ID  

• Original RD passbook 

• Updated KYC information with the bank or post office  

• Bank account details for transferring the withdrawn amount  

• Properly filled withdrawal form obtained from the bank or post office 

Example of Premature Withdrawal of RD

Let us see how premature withdrawal works with an example. Mr. Jacob, a teacher by profession decides to open a RD with a post office to ensure he has sufficient savings for the education of his child. He invests Rs.1,000 into the account every month. Two years after opening the account, he finds himself in dire need of money and decides to make a premature withdrawal. Given the fact that he has religiously deposited Rs.1,000 in the account every month for two years, he is entitled to one premature withdrawal.

The deposits made by him (minus the interest) amount to Rs.24,000, and he is entitled to withdraw a maximum of 50% of this amount. This ensures that he can withdraw Rs.12,000 to meet the emergency. Now, he can repay the amount either through monthly instalments or could pay a single lump sum. The post office decides to waive off the simple interest on this withdrawal, but there could be instances where the interest a RD earns is modified until the amount is repaid.

In case Mr. Jacob fails to repay the amount before the RD matures, the post office will make necessary adjustments, deducting this sum from the final maturity payout.

Important Things to Know Before Prematurely Closing Your RD Account 

Before closing your RD account early, it is important to understand its impact on your returns, charges, and available alternatives: 

• Premature closure can reduce your overall interest earnings.  

• You may receive a lower final payout after deductions.  

• RD generally offers higher returns than a savings account.  

• Banks may charge a penalty for early withdrawal. 

• Consider taking a loan against your RD instead of closing it. 

Should You Make a Premature Withdrawal on Your RD?

The answer to this question depends on the situation you find yourself in. An RD should be broken/closed only if there is no other option available. In case you can find alternative means to arrange for money it is recommended you do so. If there is no other alternative but to make a premature withdrawal, it is suggested that you repay the amount on time, failing which the RD might not provide the benefits it was intended to.

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