Post Office FD vs Bank FD: Which is Better?

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Fixed deposits are highly preferred investments in India, especially in times of high market volatility and economic uncertainty. This is because they are safe, easy to understand, and fairly liquid.

There is no doubt about the relevance of fixed deposits in long-term financial planning. However, you should not neglect to compare bank FDs vs. post office FDs or company fixed deposits on the basis of interest rates and more. Post office FDs offered by the Indian Postal Services offer guaranteed returns based on the yield on government securities.

You may be keen to invest in FDs due to the associated tax benefits. However, make sure to compare essential parameters to deduce which is better, bank FD or post office FD, for your financial goals.

Post Office FD vs. Bank FD: A Comparative Analysis

Post office fixed deposits or POFDs are similar to bank FDs in the sense that you invest money for a predetermined rate and period. Here is a quick rundown of the comparison between a post office FD and a bank FD in a tabular format.

Parameters	Post Office FD	Bank FD
Ease of Investment	Need to open a savings account with India Post to book an FD online	Can be opened online from the comfort of your home
Interest Rates	The current rate of 7.5% p.a. for a tenor of 5 years	Bank FDs for a tenor of 5 years vary between 6.5% and 7.25%
Higher Rates for Senior Investors	Nil	Yes
Minimum investment	₹1,000	Minimum amount varies from ₹1,000 - ₹5,000, depending on the bank
Tenor	5 years	7 days to 10 years
Security	Backed by the Government of India	Up to ₹5 Lakhs insured by DICGC

Here are a few important features to consider while comparing post office fixed deposits vs. bank fixed deposits.

1. Interest Rates

POFD interest rates are revised at the beginning of every quarter, while bank FD rates depend on repo rates set by the RBI. The RBI may or may not revise these rates quarterly, depending on market conditions. Banks set their interest rates based on these repo rates, which may slightly differ between banks. While comparing post office vs. bank FD interest rates, POFD interest rates are typically slightly higher.

For example, during the July-September 2023 quarter, five-year POFDs were offering interest at 7.5%. At the same time, five-year bank FDs were offering interest rates ranging between 6.5% and 7.25%.

Also, senior citizens are not eligible for higher interest rates in five-year POFDs. Most banks, however, offer an additional interest rate of 0.25% to 0.65% on senior citizen FDs.

2. Ease of Access

It is fairly easy to invest in a bank FD. You can do so from the convenience of your home via online banking. However, to invest in a POFD, you need to first open a savings account with India Post. Once this is set up from your local post office, you can invest in a POFD online.

3. Safety of Investment

In essence, post office fixed deposits are safer than bank FDs. This is because they come under small savings schemes, which are government-backed. Bank FDs are also extremely safe as they are not market-linked. However, these FDs are insured only up to ₹5 Lakhs in the event of the bank going bankrupt or defaulting.

4. Investment Eligibility, Limit and Tenure

Indian residents above 10 years of age can open an FD account with India Post. Banks also allow children to open regular FD accounts with a guardian. Some of these FD schemes are available only till the child attains 18 years of age.

Five-year POFDs have a minimum investment requirement of ₹1,000, with no maximum cutoff. However, you can only claim up to ₹1.5 Lakhs for tax deduction. You can only invest a maximum of ₹1.5 Lakhs in five-year tax-saving bank FDs.

You can invest in bank FDs for a tenor ranging from 7 days to 10 years, while POFDs have limited tenor options of 1, 2, 3, and 5 years.

5. Tax Implications

You can claim a tax deduction of up to ₹1.5 Lakhs by investing in either five-year POFDs or bank FDs. However, the interest income from both of these is taxable. You must add it under ‘income from other sources’ during your ITR filing.

6. Premature Withdrawal

For POFDs, premature withdrawal is not allowed in the first six months. However, if you withdraw funds after six months, the interest will be calculated according to your time of withdrawal.

For example, if you close your five-year POFD after the first year, the interest rate will be 2% less than the rate for one-year deposits. Similarly, if you withdraw after year two, the rate will be 2% less than the rate for two-year deposits and so on.

While trying to determine which is better, post office FD or bank FD, remember that both are highly safe investments reaping good ROI. POFDs have the edge of government security and offer slightly higher interest rates. However, you should also consider factors like the convenience of online banking and ease of operation.

Before making a decision, consider all the aspects and collect at least three to four offers from banks. You can compare the FD rates of all the leading banks and invest on a single platform on Bajaj Markets.

Disclaimer

The information provided by BFDL herein above is related to the Non-Partnered Banks/ NBFCs and is just for the purpose of information and under no circumstances the information provided hereinabove is intended to be source of advice or recommending any financial investment advice or endorsement of any sort.

The information including interest rates with regard to fixed deposit, provided on this website is gathered through publicly available sources over the internet and is considered as accurate and reliable to the best of our knowledge. BFDL disclaims any responsibility or liability regarding inaccuracies, omissions, mistakes etc. as well as offers by the Non-Partnered Banks. The use of information set out is entirely at the User’s own risk and User should exercise due care prior taking of any decision, on the basis of information mentioned hereinabove. You are advised to visit/ contact the respective Banks/ NBFCs to verify the information before making any investment or opening an account. Further, BFDL does not undertake any responsibility or liability to update this information. YOU ARE SOLELY RESPONSIBLE FOR ANY LIABILITY OR DAMAGE YOU INCUR THROUGH ACCESS TO OR USE OF THE SITE OR SUCH INFORMATION OR MATERIALS EXCEPT WHERE THE LAWS AND REGULATIONS OF A PARTICULAR JURISDICTION CONCERNING WARRANTIES CANNOT BE WAIVED. Additionally, display of any trademarks, tradenames, logo and other subject matters of intellectual property owners. Display of such Intellectual Property along with the related product information does not imply BFDL’s partnership with the owner of the Intellectual Property of such products.

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Monthly Interest on FD

Yes. Provided you have a post office savings account, you can receive funds from any bank account, online. You can then proceed to make a post office fixed deposit investment, also fully online.

Yes, you can claim an income tax deduction of up to ₹1.5 Lakhs under Section 80C on 5-year post office fixed deposits.

This depends entirely on the investor. Say, for example, you are a senior citizen who wants to invest in a safe scheme offering guaranteed returns. You also want to earn the maximum possible returns on your investment.

In this case, a bank FD is better for you. This is because you get incremental interest ranging from 0.25% to 0.65% for bank FDs, as opposed to post office fixed deposits.

You can open a post office savings account in any post office across India. Once that is done, you can invest in a post office fixed deposit from any post office. Else, you can make the investment on the India Post website or mobile app. You can also transfer your account from one branch to another, at any time.