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FD Vs Post Office Saving Scheme - Which is Better?

Jagrity Sharma Jagrity Sharma 22 August 2019

Weigh your investment decision by checking the significant differences between Fixed deposit and Post Office Saving Schemes based on four major parameters!

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When it comes to investing your hard-earned money, you always need to do careful planning and undertake research before settling with an option. This is mainly because the investment decision you make can be affected by several aspects such as interest rate, the term of investment, the flexibility of operation, among many others. As an informed investor, it is essential to evaluate different options and device an investment strategy after considering several factors.

It is easy to get carried away by market trends and newspaper headlines when investing money, but it is wise to evaluate your investment purpose, the amount of fund you have, and your future financial needs. If you are struggling to decide which is the better investment option among fixed deposit and post office saving schemes, it is smart to weigh your options carefully and choose accordingly.

Fixed deposit

When you deposit money in a bank account or with an NBFC for a pre-determined period and at a pre-determined rate of interest, it is called FD or fixed deposit scheme. FD, as a financial instrument, has been one of the safest and the most promising investment schemes in India. It has delivered good returns consistently over a significant period. Fixed deposit is a worthy investment option for those who want to play safe when it comes to investing their money.

Post office saving schemes

Post office saving schemes, as the name suggests, is not a single scheme. Instead, it includes a list of saving schemes that offer a risk-free and reliable return on investment. The post office schemes are available across all the post offices in the country. One of the most known schemes of the post office is PPF, which is operated in the post office of every Indian city as well as in all public and private sector banks.

Schemes available under post office saving scheme

  • Post Office Time Deposit Account
  • Post Office Saving Account
  • Five years Post Office Recurring Deposit Account
  • Post Office Monthly Income Scheme Account
  • Public Provident Fund
  • Senior Citizen Saving Scheme
  • National Saving Certificate
  • Sukanya Samriddhi Accounts
  • Kisan Vikas Patra

Features of fixed deposit

  • You can deposit money in a fixed deposit account only once. In order to deposit more money, you need to create another fixed deposit account.
  • Liquidity in fixed deposit is less. You may have to bear the penalty for premature withdrawals.
  • The interest income earned from the fixed deposit is taxed at the source.
  • Fixed deposits offer the stability of investment.
  • You can opt for periodic interest payouts to manage your monthly expenses.
  • Fixed deposits are not affected by market fluctuations. Your bank FD investment is insured for an amount of up to Rs. 1 lakh.
  • Senior citizens are offered higher interest rates.

Features of post office saving schemes

  • The interest rates applicable to different post office saving schemes are reviewed every quarter.
  • You are required to invest a certain sum of money as the minimum deposit to keep your account active.
  • Except for recurring deposit, any saving scheme of a post office can be opened with a minimum investment of Rs. 20 to 1500.
  • Some of the saving schemes offered by post office qualify for income tax benefits. You can claim a deduction from your taxable income under Section 80C of the Income Tax Act, 1961.

Fixed Deposit vs. Post Office Saving Schemes. Which one is better?

Fixed deposit is a traditional investment instrument offered by banks. Any amount of money with no maximum limit can be invested in a fixed deposit for a term ranging from 7 days to 10 years. The interest rates offered on fixed deposit vary between banks and different categories of investors like senior citizens and regular investors.

The post office operates post office saving schemes, which are also termed as small saving schemes. They are known for better interest rates than fixed deposits. Here is a comparison of the different features of fixed deposit and post office saving schemes.

  • Interest rate: The interest rates offered for different saving instruments under post office saving schemes range from 4% to 9%. The interest earned on fixed deposit ranges from 6% to 8%. Compared to different saving schemes offered by the post office, the interest rate offered on fixed deposit of leading banks is low at present. However, interest on PPF and SSY schemes offered by banks is the same as their rate of interest is decided by the government.
  • Tax efficiency: When compared with fixed deposits, some schemes offered by the post office are seen to be more tax efficient. For instance, interest earned on Public provident Scheme is fully tax exempted. On the other hand, interest income derived from the fixed deposit is taxable under Section 80C of the Income Tax Act, 1961. However, banks also offer a tax-saving fixed deposit for the term of five years.

  • Advantages for senior citizens: Most of the banks do not offer higher interest rates to senior citizens as compared to post-office schemes. The Senior Citizen Savings Scheme offers 8.6% interest rate per annum effective from 01.07.2019. Senior citizens looking for monthly income may find post office monthly income scheme beneficial as it offers an annual interest rate of 7.6% effective from 01.07.2019. The monthly rate of interest on fixed deposit is considerably lower and hence, not very attractive when compared to post office saving schemes.

  • Service quality: From the service quality aspect, banks significantly surpass post offices. When it comes to customer service, banks offer services using the latest and advanced technology, whereas the experience at the post office can be time-consuming involving a lot of paperwork.

Both Fixed deposit and post office saving schemes come with a set of advantages and disadvantages. A decision to invest between fixed deposit and post office saving schemes depends on the surplus amount you would like to invest. The fixed deposit helps you to invest a lump sum amount for a specific term, whereas most of the post office savings schemes allow you to invest a nominal amount on a regular basis. You can plan your investment considering various aspects such as interest rates, tax efficiency, and service quality before making an investment decision. Happy investing!

Recommended Read: Are Fixed Deposits a Good Investment?

Jagrity Sharma
Written by Jagrity Sharma
A bibliophile who hates alliterations, but loves cream, comics and content immensely! On another note, a content marketer who leverages the power of words to explain...almost anything!