Several deposit schemes are being run by the government, banks, and post offices. People invest in deposit schemes for savings and wait for them to mature so that they can earn more money. But sometimes, money has to be withdrawn prematurely for emergencies. Premature withdrawal from the deposit scheme causes a lot of damage. Interest decreases and penalties are also levied. There is a similar rule for the Post Office Time Deposit (POTD) scheme.
The loss due to premature withdrawals in the Post Office Time Deposit Scheme can be understood with the help of an example. Suppose a person invested Rs 5 lakh in POTD for 5 years. At the time of investment, the interest rate on deposits was fixed at 6.7 percent. Accordingly, the interest of Rs. 34,351 will be available every year and this interest will continue for 5 years.
More losses are incurred when money is withdrawn in between the term than losses incurred on FDs
Let us assume that the person investing in the scheme has to break the post office deposit scheme after 3 years as he needs money for an emergency. In such a situation, the person will get only a lump sum amount of Rs. 4,50,140 from the post office. Accordingly, the depositor will suffer a loss of 48 per cent on interest. If the scheme is discontinued earlier, the interest deficit will be further increased. Comparing this scheme with fixed deposits (FDs), the customer suffers more.
More benefits on maturity
On the other hand, the scheme offers higher returns than FDs on maturity. The scheme offers more interest than bank FD's. But while FD's are fined up to 0.5-1.0 percent for premature withdrawals, POTD has a higher penalty rate.
Once deposited, you cannot withdraw money for 6 months
The POTD scheme is available in four different periods of 1 to 5 years. It does not allow premature withdrawals and attracts a heavy penalty if you withdraw money. For 6 months after the amount is deposited, you cannot withdraw the money at all. While the money in the FD can be withdrawn the next day after depositing it.