Revised Rules for Premature Withdrawal of 5-year Post Office FD

Key Takeaways:

1. The revised rules for premature withdrawal of 5-year post office FDs state that if the FD is withdrawn before completing four years, only post office savings account interest will be paid.

2. This change results in a significant loss for investors, as they will receive a lower interest rate (currently 4%) compared to the stipulated rate for the 5-year post office FD (7.5%).

3. An example provided in the article illustrates that premature withdrawal after completing four years can lead to a loss of 43.82% of the total interest payable in a 5-year post office FD.

4. The new rules are applicable to post office time deposit accounts opened on or after November 10, 2023, while the old rules apply to accounts opened before this date.

The premature withdrawal rules for post office time deposits, also known as post office FD, have been revised by the government. According to the new rules, a 5-year post office fixed deposit (FD) cannot be prematurely withdrawn before it completes four years from the date of deposit. If a 5-year post office FD is prematurely withdrawn after it completes 4 years, then only post-office savings account interest will be paid for the entire period that the FD has remained with the post office.

This means that if an individual decides to prematurely withdraw a 5-year post office FD after it has completed four years, they will receive the applicable post office savings account interest, which is currently at 4%. This is a significant loss for the investor, as the 5-year post office FD offers an interest rate of 7.5% per annum. Therefore, the investor will get 3.5% per annum less interest rate than the stipulated rate (7.5% - 4%) because the post office FD is broken within 1 year from the maturity date.

Here’s an example to understand the impact of premature withdrawal:

Suppose an individual invests Rs 5 lakh in a 5-year post office FD at the interest rate of 7.5% on October 1, 2023. As per post office time deposit rules, interest will be paid out annually to the investor. An investor will receive annual interest of Rs 38,568, which means a total interest in 5 years of Rs 1,92,840.

However, due to some emergency, the individual decides to prematurely withdraw the post office FD after it has completed four years. In this case, the individual will get Rs 1,08,326, resulting in a loss of interest of Rs 84,514, which leads to a loss of 43.82% or almost 44%.

The new rules for premature withdrawal of post office time deposits accounts opened on or after November 10, 2023, are as follows:

The old premature withdrawal rules, which apply to post office FDs opened before November 10, 2023, allowed breaking of 5-year post office time deposits once it had completed 6 months. Regardless of the tenure, none of the post office FDs could be prematurely withdrawn before completing 6 months from the date of deposit. A penalty of 2% was applicable if a post office FD was prematurely withdrawn after it completed one year but any time before maturity.

As per the old rules, if the 5-year post office FD is withdrawn after it completes four years, then the interest rate on the three-year time deposit (prevailing at the time of placing the 5-year FD in question) will be applicable for calculating the interest amount payable.

The new rules will be applicable to post office time deposits accounts opened on or after November 10, 2023, while the old rules will be applicable to accounts opened till November 9, 2023.

FAQ

Q1: What are the revised rules for premature withdrawal of 5-year post office FDs?

A1: The revised rules state that a 5-year post office FD cannot be prematurely withdrawn before it completes four years from the date of deposit. If prematurely withdrawn after completing 4 years, only post-office savings account interest will be paid.

Q2: What is the impact of these rules on investors?

A2: Investors will experience a significant reduction in the interest rate earned upon premature withdrawal, resulting in a substantial loss compared to the stipulated rate for the 5-year post office FD.

Q3: When do the new rules come into effect?

A3: The new rules are applicable to post office time deposit accounts opened on or after November 10, 2023.