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If the time deposit is withdrawn from 6 months period to 1 year period, only simple interest rate would be payable

If the time deposit is withdrawn from 1 year, but before the maturity period, then while interest would be paid based on the interest rate applicable for the tenure the time deposit is there,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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Post office Term deposit better than bank fixed deposit?

Suresh KP


  1. Clarify
    Do you pay interest annually for 5 year TD or only on maturity at the end like a cumulative deposit since the rate of interest is higher. This is not clear for a depositor. Reply e mail immediately.

    1. Hello Dr. Hariharan, In Post office Term Deposits, the interest is compounded quarterly, but paid annually. Generally this is credited to your Post office saving account

  2. I had a query.
    What does post office do with the money it collects by various deposit schemes?
    Does it invest into something like lic does or uses it for it’s own functioning?

  3. Retired employees should not take any risk in depositing their hard earned money in bank FDs. They should go for investments in Government departments though the interest rates are marginally less compared to banks. Go for Post office term deposits. The safest way to protect your investments.

  4. I have deposited some amount for the period of 5 years in post office (Fixed).
    Now can I withdraw it before 5 years. If I can please tell me how and what are the formalities for this.

  5. sir

    iam Ravi Kumar
    iam not understanding what is different between depositing in bank and post office
    iam a student so u can explain me how my planning should be .

    1. Hi Ravi, Post office schemes are backed up govt of India for security. However, for banks (unless they are nationalised banks), these are not backed up with any security.That is the major factor. Otherwise, one would invest based on interest rates.

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