Corrected: 20-Jan-2013
Post office Term Deposit better than bank fixed deposit?
Post office offers variety of small saving schemes. One among is Term deposit. Post office term deposit is similar to bank fixed deposit. However, there are several features associated term deposit offered by Post office.
What is Post office term deposit?
Post office offers term deposits for 1 year, 2 years, 3 years and 5 years period. Any investor who wants to invest a lump sum amount for such periods can invest in such term deposits.
Who is eligible to open?
Any individual adult either single or jointly can open the account. Group accounts, institutions, trust and welfare funds are not eligible to open the account.
How much can we invest?
- Minimum of Rs 200, multiples of Rs 200 thereof.
- Maximum – No limit
Penalty for premature withdrawals
If the time deposit is withdrawn from 6 months period to 1 year period, only simple interest rate would be payable
If the time deposit is withdrawn from 1 year, but before the maturity period, then while interest would be paid based on the interest rate applicable for the tenure the time deposit is there, one percent penalty would be deducted.
What are the rates of interest?
Below are the rates of interest. Interest would be compounded every quarter.
- 1 year – 8.2%
- 2 year – 8.3%
- 3 years – 8.4%
- 5 years – 8.5%
What about Tax
- If you invest for 5 years in post office term deposit, you would be eligible for income tax exemption under 80C.
- There is no TDS deducted on the interest.
Is post office term deposit is better than bank fixed deposit ?
Below are the major differences among these two
- Tenure of deposit
- Term deposit offered by Post office is available for 1, 2, 3 and 5 years period
- Bank fixed deposits are available from 15 days period to 10 years period.
- Interest rates:
- Post office deposit rates are between 8.2% to 8.5% p.a.
- Bank fixed deposit interest rate varies between 7.5% to 9.25% p.a.
- TDS
- For Post office term deposit, there is no TDS deducted by Post office.
- For Bank Fixed deposits, TDS would be deducted on interest.
- Opening the deposit account
- Post office term deposit can be opened only by adult individuals either single or jointly. Others cannot open the deposit account.
- Bank fixed deposits can be opened by any one
- Safety
- Post office run by Govt. of India, hence term deposits are 100% safe.
- Bank fixed deposits does not provide any safety. However investment up to 1 lac in bank fixed deposits are covered under insurance.
Conclusion: Term deposits offered by Post office and bank fixed deposits have their own advantages and disadvantages. Select the fixed deposit which is best suitable for you to maximize your returns.
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Suresh
Post office Term deposit better than bank fixed deposit?
Sir, i have invest of 25,000 every month's, what's best invest post fd bank fd, after 5 years ??? amount in my hand (my child education purpose).
Hiren, Best is bank FD as interest rates are high
Hello sir,
I want to invest 30000 for one year without any risk where can i invest
Bhanu, You are looking for short term investment. Better to invest in bank FD or post office saving schemes.
Dear Suresh,
Need your support on the short term & Long term investment.
My CTC is 12 Lakhs and yearly saving is aprox 4 lakhs…My planning is that will do job for more 10 years..ie upto 2025….
Now,request you please give the guidence in which investment plan should spent so after retirement(ie 40 years) will be getting some good amount…so that my family life will be OK in all respect.
Thanks Sir…
waiting for your positive response.
Invest in largecap or diversified funds like ICICI Pru focussed blue chip fund,HDFC Top-200, Birla SL Frontline fund, BNPP Equity fund, UTI Opps fund and Quantum long term equity fund. You can pick any of these funds.
Jay bharat sir
Sir have u a any informetion about fd spcialy for chind girl in post office. I want fd or term diposit in post which scheme sute me my daughter is now only 3 month so what am I do?
Guide me sir
Hi Vikas, There is no such scheme. However you can opt for any bank FD or post office FD scheme and it is immaterial as they provide good returns now.
I have invested in ICICI RD for 15 months starting from May 2014 and amount of 10000 per month. However, i have another 10000 available per month. Where should i invest my another 10000 (FD, RD, Post Office)?
Vishal, Open another RD. However try other than ICICI Bank as this bank offer low interest rates for RD
Thanks.
Sir, Will you please clarify the difference between T D S & IncomeTax?? If income exceeds above the prescribed limit, Bank will deduct TDS but what about IncomeTax? IncomeTax also deducts according their rules separately??
Chandrasekhar, TDS is Tax Deducted at Source. It is a part of income tax. If your income exceeds the taxable income limit, your employer will deduct tax every month provisionally or at the end of financial year from your salary itself. At the end of financial year when you file IT return, you have to calculate the final Income tax payable by you for the whole year. If it exceeds the TDS, you have to pay byn Challan in Bank. If the IT falls short of that collected by your employer you can claim refund from the IT department.
Which is beneficial?POtime deposits,bank fd's or ppf??
what is the interest rate of invidual. cud u pls explain each of the scenario in detail??
Thanks
Hi Eshwar, Each of them have their own pros and cons. e.g. POTD interest rates are at 8.4% to 8.6%, whereas banks are offering 8.5% to 9%. PPF on other hand comes with good benefits like lock-in period of 15 years, high rate of interest of 8.75% per annum and 80′c tax benefits. This could be good retirement benefit option.
HI Mr.SUresh,
My father had invested in MIS in post office. Due to various reasons we could not take the the deposit amount out of the post office for another two years after maturity. Are we entiltled for any interest for the two years after maturity?
Hi Usha, After maturity, Post office would pay 4% interest rates on any post office saving scheme. After that they would not pay any interest amount.
Hi Suresh,
Good Morning.
I want to invest 100000/- in NSC for 10yrs.kindly help me in understanding, will i need to pay the total amt once or it need to be paid monthy till 10yrs. How can we claim the amt after the completion of the term.
Is this amt would be excemption from tax and what is TDS means.
Hi Kali, If you want to buy NSC, simply to go Post office, pay cash or cheque and get NSC ceritificate for 5 or 10 years. You can claim Income tax as per section 80C up to Rs 1 Lakh maximum. At Maturity, you can surrender NSC certificate and take cheque which contains investment amount + interest.
Dear Suresh,
Thanks for your advice, but I want to know, as I'm based in Kuwait (NRI), (I should have told you earlier), can I make a bank fixed deposit of 40,000 Rs. in my son's name for 2 years, as a local account to avoid tax (that through form 15G) that I have to apply, or can I apply as an NRI account to evade the tax. What's your proposition?
Hi William, You can open bank account even when you are out of India. You may contact HDFC or ICICI Bank where they are offering such services. You can submit form 15G and TDS would not be deducted.
Thank You, Mr. Suresh.
i want to invest 100,000/- in post office deposit pls i want some adivice…………
Kamlesh, You can do it. However post office schemes offer 8.5% to 8.7% based on tenure of deposit. Alternative you can invest in bank FD schemes which offer 9% returns.
Hi Suresh,
I am planning to invest 50,000 for 5 years, had two options in mind, Bank FD and Post office 5 yers term deposit.
I did go through your blog, as it is mentioned that for Post offic eterm there is no TDS deducted from Post Office, we will still have to pay the tax by oursleves (please correct me if I am wrong!). In that case, as far as tax is concerned, both FD and Post office are the same.
If the above is true, then as the interest rate in FD is more and also compounded quartely, isn't investing in Bank FD a better choice.
Please advise.
Thanks in advance
Prijitha
Hi Prijitha, You are 100% right. However choose a good and safe bank while investing. Don’t invest in smaller banks as there would be some risk.
Thanks a lot for your advise Suresh!!
Sir today I hav invested 1lac in bank as fixed deposit for 1year at rate of 9.25 p.a. should I pay tax on interest income or not? Will bank return interest after deduct TDS nd what rate they will charge? Can I invest in another FD without paying tax? Is there another option to invest smartly?
Sachin, It depends on your taxable income. Interest on bank FD’s needs to be added every year and you need to pay tax. If you have submitted PAN number to bank they would deduct 10% TDS. However if you are in 20% tax bracket, you need to still pay balance 10% just before filing income tax returns. You can look for tax free investments if you look for tax free returns which could be PPF, tax free bonds, equity mutual funds which would be redeemed after 1 year etc.
I am going to retire shortly. I could get retire ment benefits around 15 lakhs. If if invest this moneyin SB or MIS scheme of any bank, how mmuch I can get monthly as permanent income
Hi Varadarajan, Post office MIS scheme would fetch you 8.5% returns i.e. Rs 15L investment you would get Rs 10,600 per month (approx). Similarly if you invest in any bank you may get little higher. However as a senior citizen, you would get up to 9.5% interest in any bank which translates to Rs 11,875 per month.
Dear Sir,
What is ppf account?and ppf account is better than fixed depositekindly explain it in detail.
Santosh, Public Provident Fund (PPF) can be opned with post office or with SBI etc. You can get tax exemption u/s 80C up to Rs 1 lakh. Also the interest is tax free. Hence people prefer this as good investment option in case of long term. FD’s are for short term to long term. If you do not want money for next 15 years and save tax and want tax free income, open PPF account and start investing.
Hi Suresh,
If i invest 50000rs in post office fixed depost for a period of 5yrs, i will get tax benefit of 50000rs for the current financial year only or i will get tax benefit of each year 50000rs for the next 5yrs?
Whether the interest generated on the 5yrs FD in post office scheme will be taxable?
Kindly reply.
Raja, It would be only for 1st financial year. Yes interest generated is taxable and you need to show this as “Other income” in your tax returns and pay necessary tax on this.
Hi Suresh, Thanks for your reply. Can you please explain on the below points.
•For Post office term deposit, there is no TDS deducted by Post office.
•For Bank Fixed deposits, TDS would be deducted on interest.
Hi Raja, Yes. However though post office would not deduct TDS, we need to show this as part of our IT returns and pay tax.
Sir I can invest only 2000 per annual please suggest me best option. I dont know any idea
Amit, It depends on your risk appetite. Are you high risk, medium risk and low risk investor?
Sir I can invest 2000 monthly and I m low risk invester .Please tell me best option
Hi Amit, You should go for balanced mutual funds like ICICI Balanced fund or HDFC Balancd fund
Mr. Suresh, can you tell me whether my mother (68 years old) should deposit her money in post office or nationalized bank (say Bank of Baroda – Goa) for a 'fixed deposit' of 1 year, but renewable every year. Kindly reply.
Hi William, Post office offers just 8.5% (approx) whereas banks are offering more than 9.5% for Senior citizens. Hence you should go for nationalised banks FD scheme.
I would like to know if i invest in po's fd than it will take 9 years for the amount to double right?
and in other banks approximately 8 years! when i enquired about the fd in sbi they told me that any amount above 25lks would not have tax benifit (sorry i dont know how to put it in appropriate tearms)
so i want to ask if i were to invest 50lks how much tax will they deduct after the amount gets doubled?
please give me the step by step details on how to calculate tax and how to calculate the interest rates, for when they told me it is 9% that i simply calculated 9% of the amount and divided it with invested amount so it gave me 11.12321423 years so i thought it would take those many years to double up the amount where as in the above discussions i learnt that i was wrong.
Thanking you for your help!
Sarvesh, 1) There is no limit about getting tax benefit. All banks would deduct TDS of 10% of interest if you have submitted PAN or if you have not submitted PAN, they would deduct 20%. If you are not falling in tax bracket, you can fill necessary form and they would not deduct any TDS 2) Interest computation would be simple. Opening balance x interest rate for that year. e.g. if you have invested Rs 100,000 @ 9%, first year interest would be Rs 109,000. However second year it would be Rs 109,000 x 9%. 3) To compute how much time it takes to double your money is simple thumb rule of 72 divided by interest rate or years. e.g. if you want to double your money of Rs 100,000 at 9%, divide 72/9 = 8 years. Means you can double your money in 8 years @ 9%. Similarly if you want to double your money in 7 years, you can divide 72/7 = 10.3. Means you need to get 10.3% interest if you want to double your money in 7 years.
Thank you for the help, I really appreciate your keen interest in helping people.
sir i want to invest Rs 50000 in NSC post office saving for 5 yrs. Can i get tax exemption ( rebate) per years ( mean contionous five years or only one year). and which is best for tax rebate for continous five years .. FD OR NSC THANK YOU.
Hi Manoj, You would get only 1 year tax benefit if you invest now. Bank Tax saver FD (5 years tenure) or NSC (5 years tenure) or ELSS Mutual funds (min 3 years tenure) are some of the options available for u/s 80C.
helllo sir ,can any one tell me that in how many yrs take post office to double the amount ,and if i do fd of 2.5lk than what is return after 35 yrs pls give me a very specific ans and also tell me that i go with indian post office or a bank…thanks
Yadvendra, If you invest in post office @ 8.5% returns, your money would double in 8.5 Years. If you invest in bank @ 9% interest rate, it would be less than 8 years. You should choose a good bank and invest. Don’t invest in small banks. Also you can diversify by investing up to Rs 1 Lakh in a bank so that your deposit is secured by deposit insurance.
sir i want to get monthly income from my investments , i want to invest 30 lacks rupee …is any tax in post office fixed term deposit ………..or is this possible to deposit this much huge amount ?
Basha, You can invest, but instead invest in various options like Bank FD, Post office Term deposit etc. I am planning to write an article next week about investing options which gives monthly or regular returns. You can consider them too.
Sir I am confused bw fd rd and po 5 year scheme as I want to invest 10000 pm in rd uf there is fd or po5 year scheme ill open a fd every month of 10000.which will be better in terms of returns including taxess
Namit, Comparing to PO Term deposit, FD’s score more as we get higher returns
Hi Suresh,
Good article, I am thinking of investing in the PO 5 year fixed, about £20,000, as it is 100% safe. But on maturity how do we get the money back to UK in £'s
Pankaj
Pankaj, If you are NRI, you cannot invest in post office schemes. If you have your spouse or parents at India, you can invest indirectly in their name. The rate of interest is already specified in this article, based on this you would get interest.
I think fixed deposit is better than post office scheme..
Sir,my father want to invest around 10 lakh.He require a fix amount to be get every month.What would be best investment options available….with regards
Prasad, You can invest in Bank FD, Post office MIS scheme to get regular fixed monthly income. These are safer investment options for your father.
Hi
I am going to open a fixed depost account for an amount 40k. I came to know that if we select 5 year tenure for fixed deposit we can avoid paying tax for the amount deposited.
Can someone please tell me what if I withdraw the amount after 1 year. Still it is acceptable and I will be tax saver for 40k
Regards,
Abhinav
Abhinav, Often people get confused about Tax saving options Vs Tax free options. If you invest in 5 year FD, you can claim tax benefit for the entire amount under section 80C in your income tax statement. However the returns from FD are still taxable. e.g. if you invest Rs 50,000 in 5 years bank FD, you can claim Rs 50,000 as tax benefit under section 80C (where max benefit is Rs 100,000). However, every year you would get interest on Rs 50,000 which is taxable and would be added to your income. I understand that some banks are providing facility to withdraw such deposits with penalty.
Thanks a lot sir,
Dear Suresh,
If I deposit 30000 in post office for 5 years only I'm exempted from tax benifit?
In my company Income Tax decleration form I see "5 Years of Fixed Deposit in Schedule Bank" option but for post office term deposit I didn't see 5 year mandatory. Could you please confirm.
Please let me know which is best option and riskless to deposit an amount of 50000 to get good returns and riskless. in between what are these schedule banks?
This is how I planned
Exemptions u/s 10,17 & Deduction Under Chapter VIA
Maximum
Invested
1
Leave Travel Assistance(LTA)(Enter least of Actual LTA paid or amount spent for FY2013-14. Original bills, tripsheet, boarding pass in case of air journey,copy of Leave Card to be submitted)
60000.00
60000.00
2
Medical Reimbursement()
15000.00
15000.00
8
80C-Life Insurance Premium
100000.00
12000.00
9
80C-Mutual Funds
100000.00
12000.00
10
80C-NHB Scheme
100000.00
10000.00
11
80C-Post Office Term Deposit
100000.00
40000.00
Kishore, All 5 years post office term deposit of bank FD are exempted from tax, Re-check with them before you proceed. Scheduled banks are like any other banks which are also monitored by RBI. However their operations are limited as they are small in size.
Dear Sir,
please advice for fix deposit …..how many year post office will take the time time souble amount.
if you provide proper advice than i m interested for FD in post office
Rajkumar, Use the thumb rule 72. If you get interest rates of 8.5% p.a. divide 72 by 8.5 which is 9 years (approx).
Sir tds not deducted and tax free are two different things .Post office is also taxable at marginal rate of tax……
Harish, Thanks for the comments. There was an error which I have corrected now. I agree, Post office, they would not deduct TDS, however an investor need to pay income tax on interest. It is not tax free. Appreciate your feedback.
Interesting one. I am not aware of PO FD's. Will try one. Thanks. Also can you say about NPS.
Chitti, Thanks. NPS already available. Here is the link. You can search on search box for any think you would like to search on my blog. http://myinvestmentideas.com/2012/10/retirement-investment-plan-nps-new-pension-scheme-india/
Good info Suresh, Post office term deposit, there is no TDS deducted…. Thanks…