The finance ministry updated the regulations concerning early withdrawals from post office fixed deposits, commonly referred to as post office time deposits, through a notification issued on November 7, 2023.Under the recent guidelines, a post office fixed deposit (FD) with a five-year term initiated on or after November 10, 2023, cannot be prematurely terminated until four years have elapsed from the FDs' commencement. The prior regulations apply to FDs established before November 10, 2023, allowing for premature withdrawal under the previous terms. While investors may find the imposition of a lock-in period clause disconcerting, it is intended to deter impulsive redemption of investment deposits for trivial reasons, thereby benefiting many investors in the long run.
What are the updated regulations announced for the premature withdrawal of post office FDs?
The government amended the premature withdrawal regulations for post office fixed deposits with different durations. The revised rules are outlined as follows:
- A five-year post office fixed deposit cannot be withdrawn before the conclusion of four years.
- Should a one-year, two-year, or three-year post office fixed deposit be withdrawn between 6 months and one year from the deposit date, it will accrue interest at the rate applicable to post-office savings accounts for that period, typically a lower rate.
- In the event of an early withdrawal of a two-year or three-year post office fixed deposit after one year, a penalty of two percent will be deducted from the relevant interest rate applicable to a one-year or two-year post office fixed deposit, depending on circumstances. The interest payable will be computed using the interest rate applicable to the completed years of the fixed deposit, reduced by two percent.
- Should a five-year post office fixed deposit be withdrawn after only four years have elapsed, the interest payable will be based on the post office savings account rate.
Old premature withdrawal rules continue for deposits on or before November 09, 2023
The stated regulations are relevant for post office fixed deposit investments made on or after November 10, 2023. However, investments in fixed deposits made on or before November 09, 2023, will adhere to the previous rules concerning premature withdrawal. The regulations governing the premature withdrawal of post office fixed deposits initiated on or before November 09 comprise the following old rules:
- Premature withdrawal of a post office fixed deposit is not allowed before the expiry of six months from the deposit date.
- If a post office fixed deposit with a tenure of one year, two years, three years, or five years is withdrawn after six months but before one year from the deposit date, the interest payable will be based on the post office savings account rate for the months that have been completed.
- In the event of an early withdrawal of a two-year, three-year, or five-year post office fixed deposit after one year, a penalty of two percent will be subtracted from the relevant interest rate applicable to a one-year, two-year, or three-year post office fixed deposit, depending on the specific term. Similarly, the interest payable will be computed as follows: The interest rate applicable to the completed years of the fixed deposit, reduced by two percent.
- If a five-year post office fixed deposit is terminated after four years, the interest rate applicable will be that of a three-year fixed deposit.
Numerous conservative investors choose post office fixed deposits due to their comparatively higher interest rates and the assurance of receiving a fixed interest amount upon maturity. Furthermore, the revised regulations concerning these fixed deposits may prompt investors to reconsider their investment strategies with a focus on long-term perspectives.
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