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Post Office Fixed Deposit

Post office fixed deposit (POFD), or Post office time deposit (POTD) is a suitable investment scheme, alternative to the bank's fixed deposits, provided by the Indian Post. The India Post (Department of Posts), is the major postal system in India and is widely distributed in the world. It is managed and operated by the government’s Ministry of Communications and Information Technology. With its vast network in the country, India Post launched banking features to the public in 2015, following approval from the Reserve Bank of India.

In addition to delivering mail services, the Department of Posts also provides banking services that include, but not limited to, Postal Life Insurance (PLI) and Time deposit schemes. The latter is more popular in rural and remote parts of the country that seemingly are under-banked with little access to investment products. With the fixed deposit scheme, an individual has the opportunity to earn a guaranteed return from money deposited in a fixed time period.

Features of Post Office Fixed Deposit

Post office fixed deposit has enticing features that draw people to invest in them, rather than choosing banks or company fixed deposits. Aside from being a secure deposit unaffected by market risks, time deposit schemes also give the investor the freedom to choose the time frame to deposit. The post office fixed deposit grants the investor maturity period choice of one to five years. It is an investment option ideal for those who want safe investments with a low-risk profile. Listed below are features of post office fixed deposit.

Flexibility

To open a post office fixed deposit account, the bare minimum amount is Rs. 100, and there is no upper limit. This makes it ideal for low-income earners and opens an opportunity to invest for them. In addition, there is no limit to the number of fixed deposit accounts you can open. Thus, you can open it for your kids, and manage it for them or for your extended family members, according to your needs and requirement. Moreover, you can convert your fixed deposit account from a single to a joint account, and the other way is also allowed.

The degree of flexibility is not limited to the aforementioned features, you can also transfer an existing fixed deposit account from one post office branch to another, countrywide.

Nomination

Post office fixed deposit gives you the opportunity to add a nominee while opening an account. Furthermore, the nominee, with an existing post office fixed deposit, can also nominate another person.

Interest

Additionally, just like any other fixed deposit, the individual earns interest, albeit, it is lucrative and sometimes higher than a bank's or company's fixed deposit.

On Maturity

Once the account matures, the individual is allowed to renew their account for a similar tenure or can withdraw the amount. Premature withdrawal of the funds is also acceptable, however under terms and conditions laid down.

Tax Implications

As per Section 80C of the Income Tax Act of the constitution of India, enacted in 1961, tax deductions are applicable to the investment made for a period of five years. The interest paid out is subject to TDS (tax deduction services), and if tax deductions don’t happen, it should be declared or filed during income returns.

Benefits of Post Office Fixed Deposit

The key benefits of a post office fixed deposit to the investor includes:

  • Guaranteed return on investing in a Post Office Time Deposit Scheme.
  • Under Section 80C of the Income Tax Act, only five-year period deposits qualify for exemption.
  • Minors, aged ten and above, with accounts in their names, can operate the account. It is ideal if you are indisposed at certain moments.
  • Nomination by account holders is permitted.
  • Flexible deposits on investments are possible with a minimum of Rs. 100.
  • Accounts can easily be transferred from one post office branch to another in case you move.
  • A single accounts can be converted into joint accounts, vis-à-vis, joint accounts can be made single.
  • These fund provide protection against inflation. If the inflation rate is well below the fixed time deposit interest rates, the investor earns more.
  • Post office fixed deposits are risk-free investments where the funds invested are paid back on maturity with interest irrespective of the market conditions.

Premature Withdrawal Is Permitted

Post office fixed deposit accounts allows for the withdrawal of funds prematurely by the account holders. However, this can be done only after six months have passed after the first deposit. Premature withdrawal is subject to the following terms and conditions.

  • If the premature withdrawal is made before the account is one year old, the interest payable is as per the post office savings account interest rate.
  • If the premature withdrawal is made after the account is a year old, but before the maturity period, the interest payable is 1% lower than the current post office savings account interest rates.

Who is Eligible to Open a Post Office Fixed Deposit Account?

The people who are eligible to open an FD account are as follows.

  • All Indian citizens can open a single, or joint post office fixed deposit account.
  • Operating a post office fixed deposit account can be done by minors aged ten and above. However, opening an account will require a parent or guardian.
  • Non-resident Indians are not applicable to open a Post Office fixed deposit account.

The following groups or funds are also not eligible to open FD accounts.

  • Institutional account holders
  • Welfare funds
  • Regimental funds
  • Trust funds

Post Office Fixed Deposit Interest Rates 2019

The Department of Post offers one of the highest interest rates in India for fixed deposits. Interests are paid off annually and are compounded quarterly. Since the minimum deposit is Rs. 100, without an upper limit, the deposits made under this scheme should be in multiples of Rs. 100.

The Government of India revises the interest rates for post office fixed deposits at the beginning of every quarter of the final year and is calculated at par with government securities yield. Below is a table list of the interest rates applicable from 1st July 2019

Time Deposit TenurePost Office FD Interest rate (in %)
1 year6.90%
2 years6.90%
3 years6.90%
5 years5 years

The above interest rates are reviewed every quarter by the Finance Ministry

FAQs on Post Office Fixed Deposits

How much time will it take for a Post Office FD to double?

Since the fixed deposits prevailing rate for the 1st year is 7%, for your investment to double, it will take a total of 10 years and 4 months. To better understand this, we need to incorporate 'Rule 72.' To calculate the time taken to double your money kept as Fixed Deposit, divide 72 by the Interest rate provided by the post office branch. In our case, the prevailing interest is 7.0%, then 72/7 = 10 years and 4 months.

Which scheme is the best provided by the Post Office?

Post Offices are spread across India offer multiple savings schemes, some with prevailing high-interest rates. The interest rates given below are applicable from 1-7-2019. They include:

Post Office Monthly Income Scheme Account (MIS)

It requires investments in multiples of Rs 100. The upper limit for the Post Office Monthly Income Scheme account is Rs. 4.5 lakh (a single account) and Rs. 9.0 lakh (joint account).

  • Interest rate: The account has a prevailing interest rate of 7.6% per annum payable every month. The deposited amount can also be withdrawn prematurely after one year, but at a 2% discount, if less than three years has lapsed from the time of opening the account. Premature withdrawing after three years attracts a discount of 1% of the initial deposit.
  • Five-Year Post Office Recurring Deposit Account (RD): A recurring deposit account can be maintained with a minimum of Rs. 10 per month or amounts that are multiples of Rs. 5 and without an upper limit to depositing.
  • Interest rate: The account has a prevailing rate of 7.2% per annum. Making subsequent deposits is dependent on the account opening date, if the account was opened between 1st and 15th the next deposit should be made between 1st and 15th of next month. If the account was opened between the 16th and last day, the recurring deposit would be made in a similar manner. A default fee is charged for late deposits, and after 4 regular defaults, the account is discontinued and is eligible for revival within two months, after which it is discontinued permanently.
  • On maturity: An initial Rs. 10 deposited yields Rs. 725.05 after five years. The account can then be continued for another 5 years if need be.

Senior Citizen Savings Scheme (SCSS)

Best for Individuals of the age of 60 and for those who are between 55 – 60 years who have retired on superannuation. These people can open an account within one month of receiving retirement benefits. The amount deposited should not exceed the retirement benefits amount. Only one deposit is allowed in multiple of Rs. 1000 with a maximum limit of Rs. 15 lakh. The maturity period is five years. Premature withdrawal attracts 1.5% deduction of the deposit within the first two years. After that, 1% of the deposit is deducted.

  • Interest rate: The account has a prevailing interest rate of 8.6% per annum payable from the date of deposit.

15 year Public Provident Fund Account (PPF)

A minimum of Rs. 500 is required to open an account and an upper limit of Rs. 1,50,000 per financial year. Deposits can either be made in a lump-sum or in monthly instalments. Maturity period is 15 years and can be extended within one-year after maturity for further five years in a similar manner. The account does not allow a premature withdrawal and tax deduction is applicable from income under Section 80C of the Income Tax Act.

  • Interest Rate: Accounts have prevailing interest rates of 7.9% per annum (compounded yearly) and are tax-free.

Sukanya Samriddhi Accounts

This is an account dedicated to the girl child. It is opened by a parent or legal guardian of the child. A minimum deposit of Rs. 1,000 and a maximum of Rs. 150,000 per financial year is required to sustain the account. Subsequent deposits are made in multiples of Rs. 100, in lump-sum or monthly instalments. Partial withdrawal is allowed, but only up to 50% of the outstanding balance at the end of the financial year, and only if the holder has attained the age of 18 years. The account can be closed at 21 years of age.

  • Interest rate: Sukanya Samriddhi Account has a prevailing interest rate of 8.4% per annum, calculated and compounded yearly. These aforementioned savings schemes are ideal for investment if you are planning to invest in any of these. Select which one is suitable for your specifications and happy investing.

Which bank is the best for a fixed deposit?

As per the 2019 bank Fixed Deposit rates, the top bank for a one-year period is IndusInd Bank, with the highest interest rate of 7.75%. For a three-year period, IDFC Bank offers a high rate of 8.25% compared to other banks. For a five-year period, Bandhan Bank should be your top choice, with a maximum interest rate of 7.65%.

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