Is Post office Term Deposit better than bank fixed deposit?

Post office Term deposit better than bank fixed deposit

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If the time deposit is withdrawn from 6 months period to 1 year period, only simple interest rate would be payable

If the time deposit is withdrawn from 1 year, but before the maturity period, then while interest would be paid based on the interest rate applicable for the tenure the time deposit is there,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

  1. 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. 
  1. 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.
  1. TDS
  • For Post office term deposit, there is no TDS deducted by Post office.
  • For Bank Fixed deposits, TDS would be deducted on interest.
  1. 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
  1. 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?

Article by Suresh

Suresh KP i.e. me have written 500+ articles on this blog. I love doing analysis and identifying the Best investment options.

90 Comments

  1. shubhadeep says:

    Sir…
    I was thinking to invest 1 lakh per month for an year so that the interest received can be a source of a fixed monthly income…
    Kindly direct me to the prevalent best and safe schemes so I make the best out of it the lowest possible income tax deductions

  2. suprokash Sengupta says:

    Please advise on Tax Saving scheme on FD & Term deposits in Banks & Post Offices

  3. Vivek Kushwaha says:

    Hi,
    Currently my age is 25. I want to invest 10000 per month. What is the best way to invest.

    Actually what I am thinking I’ll invest 10K per month in FD for 8 years @9%. So after 8 years every month I’ll get each FD return that is 20K. So its kind of a fixed monthly income.

    What do you say ? Or do you have any better idea to invest.

    • Suresh KP says:

      It depends on your risk appetite. If you are low risk investor, yes you can go for RD. Alternatively if you can take risk, you can invest in large cap funds or balanced funds. 

  4. G. Uma Maheshwari says:

    Is there any facility for opening RD a/c. from HDFC salary a/c. to RD post office a/c.

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