Post Office Fixed Deposit: Interest Rate, Tenure and More

One of the largest postal service networks in the world, India Post, also functions as a bank. The Post Office’s savings products serve the investment requirements of millions of Indians. One of the most popular savings products that the Post Office offers is the fixed deposit scheme. Post Office FD or National Savings Time Deposit was introduced by the Government of India on 12th December, 2019. Being a government-backed scheme, it is considered to be one of the safest investment options. 

However, many investors are unaware that the post office also offers two types of fixed deposits.

The National Savings time deposit and the National Savings Monthly Income Account have many features similar to fixed deposits offered by banks and NBFCs. You need to make a lump-sum deposit for a fixed tenure of time of your choice. You will receive interest as per a fixed income rate. In this blog, you will learn about the unique features, the Post office FD interest rate, and the benefits of this scheme.

Types of Post Office Fixed Deposit Schemes

National Savings Time Deposit Account (TD)

The National Savings Time Deposit Account allows you to open a deposit for one, two, three, and five years. The fixed deposit interest rates offered by the post office vary  based on your tenure. The five-year tenure fixed deposit offered by the post office also qualify for  tax deduction of up to Rs 1.5 lakhs under Section 80C. You can also open a fixed deposit either as a single account holder or a joint account with up to three account holders.  

National Savings Monthly Income Account (MIS)

This type of fixed deposit offers you the opportunity to earn a monthly income, and the tenure is for five years. The minimum deposit amount is Rs 1,000, and additional deposits can be made in multiples of Rs 1,000. The maximum deposit is Rs 4.5 lakhs for a single account and Rs 9 lakhs for a joint account. Interest is payable at the end of the month until maturity, and it is taxable as per the account holder’s tax slab. This type of fixed deposit is suitable for those who wish to earn a monthly income.

Features of Post Office Fixed Deposits

The interest on Post Office fixed deposits is predetermined and guaranteed. This implies that on the day of investment, you will know how much maturity and interest amount you will receive at the end of the tenure. Here is a snapshot of the unique features of the post office FD. 

Also Read: Experience financial growth with unmatched Bajaj Finance FD Rates

Benefits of Post Office Fixed Deposit

There are multiple benefits that you can reap from a post office FD. However, here are the top five benefits that have been why Post office FDs are a popular investment choice.

• Guaranteed & Competitive Returns: The returns are generally higher than regular savings accounts, making it a reliable choice for growing your money.
• Safety with Government Backing: The government backs it, so it’s about as low-risk as possible, giving you peace of mind.
• Flexible Tenure Options: You can pick a tenure ranging from 1 to 5 years, tailoring it to fit your financial goals.
• Tax Benefits: Opting for a 5-year term? That makes you eligible for tax deductions under Section 80C of the Income Tax Act, saving you up to INR 1.5 lakh yearly on taxes.
• Accessibility Across the Country: Being available in post offices nationwide is a convenient investment option, regardless of location.

Post Office FD Interest Rates

For the first quarter of FY24 (April to June 2023), the government has hiked interest rates on Post Office Fixed Deposits. Here is a snapshot of current interest rates for the National Savings Time Deposit Account: 

The current interest rate for the National Savings Monthly Income Account is 7.7%. 

Post Office FD Rates and Bank FD Rates Comparison 

Now that you’ve seen the latest Post Office FD interest rates, let’s take a look at the interest rates on FDs offered by banks on an average for the tenures stated. This will give you a better idea about which scheme is better based on the tenure.

As the data presents, for tenures ranging from 1 to 2 years, Post office FD rates seem to be the obvious choice. However, the tables turn when the tenure moves from 3 to 5 years, with bank FDs taking the top spot. However, to make the right choice, a comparative standard needs to be set, wherein, you will have to compare the Post office FD rates with a top bank of your choice to arrive at a more accurate conclusion.

Key Things to Note about Post Office FD Interest Rate:

1. The interest for the National Savings Time Deposit Account is compounded quarterly and payable annually at the end of each year 
2. Where the interest contains part of a rupee that is fifty paisa or more, it shall be rounded off to one complete rupee and if such part is less than fifty paisa, it shall be ignored. 
3. The interest rate at the time of opening the deposit will be applicable for the entire tenure of FD
4. If the date of payment of the interest amount is a non-working day then the interest will be paid on the next working day.
5. No additional interest shall be payable on the amount of interest that has become due for payment but not withdrawn by the account holder.
6. You can opt for payment of the interest amount directly to your savings account. 

Eligibility for Opening of Post Office Fixed Deposit Account

• Indian Residents
• Hindu Undivided Families (HUFs)
• Minors
• Single Adults
• Joint Account Holders
• Senior Citizens
• NRIs

Documents Required to Open a Post Office FD Account

If you are looking to open a National Savings Time Deposit Account, then you need to submit at least one document in each category as follows, along with two passport-size photographs:

• Proof of identity: Passport, Aadhaar Card, Voter ID, Driving license, PAN card
• Proof of address: You can show utility bills such as electricity bills, Passport, Driving License 

If you do not have access to the above documents, you can also show an NREGA Job card with the signature of the State Government official or a letter issued by the National Population Register containing details of your name and address.

How to Invest in Post Office FD

You can visit your local post office branch to open a fixed deposit. You will need to offer all Know Your Customer documents, fill out the requisite form, and either pay the principal amount by cash or cheque.

You can also open an account online by registering at the Post Office’s internet banking portal at ebanking.indiapost.gov.in. Then log in with your registered ID and password. Under the ‘General Services’ tab, click on ‘Service Request’. Next, click on ‘New Request’, choose Post Office Fixed Deposit or Time Deposit opening, and follow the directions to open the account.

Tax Implications on Post Office Fixed Deposit

Post office FDs like normal FDs, are liable for taxation under certain conditions. Let’s take a closer look to understand it’s implications:

• Taxability of Interest Income: The Income Tax Act of 1961 applies to the interest earned on Post Office Fixed Deposits.
• TDS: If the interest income exceeds the allowable limit, TDS is deducted at the source.
• Tax Savings: Investments in 5-year Post Office FDs are eligible for tax advantages under Section 80C of the Income Tax Act.
• Income Tax Slab Rates: The applicable tax on interest income is determined depending on the individual’s income tax slab rates.
• Form 15G/15H: Filing Form 15G/15H will enable those who qualify to avoid TDS on interest income.

Premature Withdrawal of Post Office Fixed Deposit Account

Premature closure of your term deposit is a facility that is given for the general public, provided your account has been in operation for the past 6 months. If one were to opt for withdrawal between 6 months and 1 year, the interest paid will be at the rate applicable to a Post Office Savings Account.

For withdrawals post the 1-year mark, the interest rate applied will be 2% less than what corresponds to the period the account was initially set up for; for any remaining period less than a year, the interest will align with the rate for a Post Office Savings Account.

Account Extension of Post Office FD

Post Office FD comes with an automatic renewal policy. This basically means that if you do not state a mandate or instruction before the maturity period, then your post office FD automatically gets renewed for a new tenure. However, one thing to keep in mind is that the interest rates offered on the Post Office FD post renewal will be based on the post office’s offering on the day of renewal.

Pledge Against Post Office FD

In simpler terms, a pledge against a post office FD is the same as a loan against a bank offered FD. In times of dire need for liquidity, you can pledge your Post Office FD as collateral in order to gain much needed liquidity. This is a rather lucrative option to consider as you avoid breaking the FD, thereby ensuring that you do not hurt your gains for the future.

All you will have to do is go to the post office where you obtained the FD, and follow the standard procedure in documentation to get the amount after offering your Post office FD as a collateral.

Payment on Death of Account Holder

The death of an account holder is an unfortunate situation in all places. The transferring of the funds after death can be a little tricky based on the information provided. However, it’s not too complicated. The deposit is transferred to the nominee, the individual designated by the account holder when setting up the account. Having a nominee designated really streamlines the process. The nominee just needs to present a few documents like the death certificate and some form of ID.

But, if a nominee wasn’t named, the deposit is transferred to the legal heirs of the deceased account holder. This situation might involve a bit more paperwork – things like a succession certificate or perhaps probate of a will, to establish the legal claim to the deposit. It’s crucial for those making the claim to connect with the post office promptly and follow the necessary procedures to ensure a smooth transition.

Final Thoughts

Post office fixed deposits are an effective saving mechanism as there is minimal risk of principal loss due to sovereign guarantee from the central government. You can put in a lump sum and enjoy a guaranteed yearly or monthly income  as per your requirement. This is a step toward diversifying your portfolio and balancing risk with a secure government-backed instrument that  offers guaranteed returns. 

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