BackWhy you should open fixed deposit (FD) in post office instead of other banks
How are post office FD different from bank term deposits? Where should you put your money. Read this to know more
PremiumAmid this volatility in the stock market, people have started putting their money in fixed deposits (FD). Since May 2022, banks have been increasing interest rates earned on their fixed deposit schemes. Even post offices offer facilities for term deposits much similar to bank fixed deposits.
How are post office time deposits or FDs different from bank FDs? Which one should investors opt for?
1) Government schemes
Post office FDs are government schemes and are least affected by volatility in interest rates. On the other hand interest rates offered on bank FDs depend on the Reserve Bank of India (RBI) repo rate revisions. Also, different banks offer different FD rates.
Amit Gupta, MD, SAG Infotech said that based on the maturity length chosen by the investors, Post Office Fixed Deposits offer sizable returns on investment and benefits. This government-sponsored savings program is among the safest options for investing since it delivers a guaranteed return.
“It is predicted to generate higher returns than rival programs. Market fluctuations have no impact on the returns, keeping the investment's interest rate steady," added Gupta.
2) Safest option for investing
Another major benefit of the post office fixed deposit scheme is safety. SEBI registered tax and investment expert Jitendra Solanki said when you deposit money in a bank, up to ₹5 lakh is safe as only ₹5 lakh is insured among your deposits in any Indian bank. this means, in case of any bank default or collapse, the government of India is liable to pay back only ₹5 lakh to a bank depositor.
However, in the case of post office deposits, the entire savings schemes are a government of India-backed and hence there is no chance of any default there. Post office FDS gives a higher return than banks of good repute, he added
Jitendra Solanki said it's better to go for post office FD instead of bank FD. Hence FD investors are advised to choose their bank properly while selecting their bank for deposits. Only FD interest rate should not be the criteria for opening a bank FD account.
Satyen Kothari, Founder & CEO Cube wealth said Postal Office Fixed Deposits (PO FDs) are considered to be technically safer due to their association with Government of India (GOI) schemes. Bank FDs, on the other hand, are guaranteed by the issuer, which is the bank, and are insured by the Reserve Bank of India (RBI) up to a limit of 5 Lacs. Despite this, Bank FDs may have fluctuating interest rates, although it does not impact existing FDs. On the other hand, PO FDs tend to have lesser rate fluctuations, providing a stable return on investment.
3) Post Office vs Bank FD: Interest rates
Post office FDs offer an interest rate of 6.8 percent, 6.9 percent, 7.0 percent, and 7.5 percent for one year, two years, three years, and five, years respectively.
For banks, there is no uniform rate. SBI, ICICI, and HDFC Bank FDs between 7 days to 10 years will give 3% to 7.1% to general customers. Senior citizens will get 50 basis points (bps) extra on these deposits. Other banks offer different rates.
4) Tenure of Post Office Time Deposit and Bank FDs
Bank FDs have a tenure ranging from 7 days to 10 years, while post office fixed deposits have a tenure of 1 year, 2 years, 3 years, and 5 years.
5) Tax benefits
Both post office FDs and bank FDs offer a tax benefit of ₹1.5 lakh if held for five years. Amit Gupta said that investors can take advantage of tax advantages on interest earnings and have the choice of withdrawing their initial investment early or borrowing against the Post Office Fixed Deposit plan's value.
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