Post Office FD: Is It Really a Good Investment Option?

What Is Post Office FD?

The Post Office Fixed Deposit, also known as Post Office Term Deposit, National Savings Time Deposit, Post Office FD, or simply POFD, is an investment instrument provided by the Indian Postal Services. This Government-backed scheme is widely regarded as one of the most dependable investment choices. Furthermore, investing in Indian Post Office FDs offers benefits like a lower minimum deposit requirement, increased returns, flexible investment durations, and the option to avail of a Loan Against Fixed Deposit, among others. For a better understanding of this investment avenue, let's see the key features of the POFD and how it differs from the Bank FD.

Key Features of the Post Office FD:

1. The Post Office Fixed Deposit comes with a sovereign guarantee. It means the deposit is backed by the Government of India.

2. Post Office Fixed Deposits are offered for a fixed tenure of 1 year, 2 years, 3 years, and 5 years.

3. The POFD Account can be opened either online or offline.

4. The depositor can either provide a cheque/cash or use the Internet banking facility to start their Post Office FD Account.

5. The Post Office FD interest is paid annually to the depositor's registered Savings Bank Account. It is important to note that the interest for the POFD is calculated on a quarterly basis.

6. A Joint Post Office FD can be opened with a maximum of three adults.

7. The depositor can choose to change their Joint Post Office FD to a Single (regular) Post Office FD and vice versa.

8. The depositor can take advantage of the tax benefit under Section 80C of the Income Tax Act, 1961, for up to Rs 1.5 lakhs in a fiscal year by investing in a 5-year Tax Saving Fixed Deposit offered by the Post Office.

9. The depositor is allowed to make a premature withdrawal of their Post Office Fixed Deposit after 6 months of opening the account.

10. The minimum deposit amount to start a POFD is Rs 1,000, and the deposit can be made for any amount in multiple of Rs 100 after that.

What Is the Latest Post Office Fixed Deposit Interest Rate?

What Are the Benefits of Post Office FDs?

1. Assured Returns:

The Post Office Fixed Deposit, being a Government-backed Savings Scheme, is a risk-free investment option that assures guaranteed returns.

2. Attractive Interest Rate:

The Post Office Fixed Deposit currently offers an interest rate of 6.9%, which is more likely to yield higher returns compared to other risk-free investment schemes.

3. Stability Amidst Market Changes:

As one of the most reliable investment choices, Post Office Fixed Deposits provide returns that remain unaffected by market fluctuations. This means investors earn the same interest regardless of market ups and downs.

4. Additional Benefits:

The Post Office FD scheme enables depositors to enjoy tax exemptions on the interest earned. Furthermore, they have the flexibility to make premature withdrawals and obtain loans against the value of their Post Office Fixed Deposit Account.

Post Office FD vs. Bank FD:

1. Deposit Security:

As discussed, POFD is a scheme initiated by the Government of India and comes with a sovereign guarantee. In contrast, Bank FD comes with the respective bank's guarantee where the deposit is made. The Reserve Bank of India (RBI) provides insurance with the Deposit Insurance and Credit Guarantee Corporation (DICGC) for bank deposits up to Rs 5 lakhs. Hence, the Post Office Fixed Deposit is considered a risk-free and much safer investment option.

2. Interest Rate Fluctuation:

Post Office FDs are Government schemes directly tied to Government initiatives, making them relatively immune to fluctuations in interest rates.

In contrast, the interest rates provided by Bank FDs are influenced by adjustments in central bank rates and, as a result, tend to change more frequently. Besides, Bank FD rates vary from bank to bank.

3. Rate of Interest:

Currently, the Post Office FD interest rate for a 1-year FD is 6.9% p.a. On the other hand, the banks are currently offering 6% to 7% p.a. for a 1-year FD.

4. Tenure:

While you can choose the Bank Fixed Deposits tenure from 7 days to 10 years, the Post Office FD tenure is available in the periods of 1 year, 2 years, 3 years, and 5 years.

5. Lock-in Period:

As you may know, the banks usually offer premature withdrawal of Bank Fixed Deposits with a nominal interest charge of 1%. However, the Post Office allows the premature withdrawal of a POFD only after 6 months of the account opening. Take note that Tax Saving FDs of both Banks and Post offices come with a lock-in period of 5 years.

6. Tax Benefits:

The 5-year tenure Post Office FD is eligible for deductions of up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Likewise, Bank FDs also offer deductions of a maximum of Rs 1.5 lakh under Section 80C. Moreover, starting from April 01, 2018, senior citizens are eligible for a tax exemption of up to Rs 50,000 on the interest they earn from the Post Office Deposits, as per Section 80TTB.

7. Convenience:

Investing in both Bank FDs and POFD is quite easy, with the option to initiate both investments through their dedicated online platforms. The key differentiating factor can be the physical accessibility of a local branch. Occasionally, the post office might be located far from the investor's residence, while with Bank FDs, investors typically have multiple bank branches available in their vicinity where they can open an FD account.

8. Senior Citizen Benefit:

Most banks offer 0.5% to 1% extra interest rate to the Senior Citizen Fixed Deposits. However, no such facility is offered by the Post Office Fixed Deposit.

Who Can Invest in a Post Office FD?

Here are the Post Office FD eligibility criteria:

• A single adult

• Joint Account (up to 3 adults) (Joint A or Joint B)

• A guardian on behalf of a minor

• A guardian on behalf of a person of unsound mind

• A minor above 10 years in his own name.

How to Invest in a Post Office FD?

Depositors can invest in POFDs offline as well as online.

Online Method to Open a Post Office FD Account:

Step 1: Complete the Post Office FD application form by providing the necessary information. You can also find the form on the Post Office website.

Step 2: Include all the required documents along with the application form.

Step 3: Go to the Post Office branch, where you maintain your savings account. If you don't have an existing account, visit the nearest branch.

Step 4: Hand over the documentation to the appropriate personnel at the branch to initiate the account opening process.

Step 5: Upon completion of the verification of the application form and documents, your POFD Account will be opened right from the date you submitted the application.

Offline Method to Open a Post Office FD Account:

Step 1: Install the India Post Mobile Banking application on your mobile device.

Step 2: Sign into the app using your login credentials.

Step 3: Navigate to the 'Requests' tab located on the app's home screen to initiate the process of opening a POFD account.

Step 4: Input the required information, including the deposit amount, tenure, the source account from which you intend to deposit funds, nominee details, and other necessary particulars to establish the account.

Step 5: Your POFD Account will get opened instantly.

What Documents Do You Need to Open a Post Office FD Account?

• Post Office FD application form

• Address Proof - Passport, Electricity Bill, Aadhar Card, Driving License, etc.

• Identity Proof - PAN card, Aadhar card, Driving License, Voter ID, Passport, etc.

Is Post Office Fixed Deposit a Good Investment Option?

Post Office Fixed Deposit is undoubtedly a good investment option if you seek a low-risk investment avenue that guarantees returns over the short or medium term of 3 to 5 years. However, it is important to consider that certain banks are currently offering more interest rates than POFD. Hence, before investing in a Fixed Deposit, you should comprehensively compare the available options based on various factors, such as interest rate, deposit rating of the bank, Gross NPA, Capital Adequacy Ratio, and more.

Take note that it is not wise to invest your entire savings into either a Bank FD or a Post Office FD for achieving long-term financial goals because the interest rates for extended durations tend to be relatively low. There are several superior alternatives for long-term investments with a moderate level of risk. Examples include liquid funds, debt funds, and carefully selected equity mutual funds among various mutual fund options. These mutual funds have consistently outperformed Fixed Deposits by providing higher returns, professional management, and improved liquidity.

However, paying attention to the wise saying "Don't put all your eggs in one basket" when it comes to investing is essential. Before committing to any financial instrument, it's crucial to establish a robust financial plan, define your investment objectives, evaluate your risk tolerance, and select the appropriate mix of investment avenues. Hence, it's advisable to consult with a trustworthy financial planner who can assess your risk appetite, income, and financial goals and guide you in creating a diversified investment portfolio.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.