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Post Office Time Deposit

India Post, the trade name of the Department of Posts, has been operational since 1854. With more than 1.55 lakh offices throughout India, it is the most widely distributed post network in the world. 

Apart from delivering mails, India Post offers the following –

  • Small savings schemes. 
  • Life insurance (Postal Life Insurance and Rural Postal Life Insurance). 
  • Instant money order.
  • Electronic money order.
  • Mutual funds.
  • Money transfer services.

Under small savings schemes, it offers the post office time deposit or National Savings Time Deposit Account. It is similar to a bank fixed deposit with a few elemental differences. 

Individuals can open a time deposit account by visiting the nearest post office or by using the official website or app of India Post.

Types of Accounts

The National Savings Time Deposit Scheme provides four accounts with varying maturity dates. This system offers accounts with maturities of one year, two years, three years, and five years. These accounts can be maintained either individually or by a group of up to three persons. Minor accounts are permitted; however, the legal guardian must manage them until the minor reaches the age of maturity. Under this approach, an individual may have many accounts.

Features of Post Office Term Deposit Scheme – 

A few of the requisite details regarding investment in the post office term deposit are as follows – 

  • Eligibility and joint accounts

Any individual above the age of 10 can open a time deposit account at any post office. Further, guardians can open an account on behalf of a minor. However, the minor has to apply for ownership of the account after he or she reaches the requisite age.  

Accounts can also be held jointly by up to 3 individuals. Depositors can also nominate a person before or after opening an account.  

One of the primary benefits of post office time deposit is that individuals can create multiple accounts without any restriction. Depositors also have the freedom to transfer their accounts from one post office to another.

  • Multiple lock-in periods  

Depositors get the option to open a time deposit account for 1, 2, 3, and 5 years. However, account tenure can be extended by giving a formal application to the post office. 

  • Income tax benefits 

Income tax benefits are available only for a 5-year post office time deposit account. Depositors will be able to claim income tax exemptions of up to Rs.1.5 lakh under Section 80C of the Income Tax Act, 1961.  

  • Lucrative returns 

The rates of interest applicable on a National Savings Time Deposit Account is listed below –

Tenure Rate
1 year 5.5%
2 year 5.5%
3 year 5.5%
5 year 6.7%

 

Consider the following example to understand the returns better – 

Mrs Shah invests Rs.5,000 in four post office time deposit schemes of 1 year, 2 year, 3 year, and 5 year each. As per the prevailing rates, she will earn –

  • Rs.5,281 after 1 year.
  • Rs.5,578 after 2 years.
  • Rs.5,891 after 3 years.
  • Rs.6,970 after 5 years. 


  • Revision and determination of rates 

The post office term deposit interest rate is revised every quarter by the Government of India. The interest is calculated quarterly and paid annually. 

This rate is determined based on the yields on government securities (G-secs). A spread of 25 bps or 0.25% is added to 5-year time deposits over and above the G-sec yield. However, 1-year, 2-year, and 3-year time deposits do not carry such spreads.

  • Transfer of rates to other accounts  

The interest can be transferred to the depositor’s post office savings account with the same post office.

It can also be transferred to the depositor’s National Savings Recurring Deposit Account or 5-year post office recurring deposit account as the entire year’s deposit. RD account holders will have to make a formal application every year before the time deposit interest is credited for this transfer to process.  

  • Payment of interest 

The interest, along with the principal, will be paid either in cash or cheque. However, payments higher than Rs.20,000 will only be made with a cheque.

  • Applicability of interest post maturity 

Those who do not withdraw the sum after the maturity of a time deposit account will not receive any additional interest. However, in case of post offices with core banking solutions, the time deposit will get renewed for the same period it was originally created. The post office time deposit interest rate at the time of maturity will be applicable after renewal.   

  • Low minimum deposit amount

The minimum amount required to open a National Savings Time Deposit Account is Rs.1,000. Individuals can deposit in multiples of Rs.100 thereof. There is no limit for maximum investment. 

Individuals can make the initial deposit in cash or cheque. In case the payment is made by cheque, the date of encashment will be set as the account opening date.

  • Premature withdrawal 

A National Savings Time Deposit Account does not allow premature withdrawal within the first 6 months. The post office term deposit rate if the corpus is prematurely withdrawn between 6 months and 12 months will be in adherence to the rate prescribed for a savings account.

Post Office Time Deposit vs Bank Fixed Deposits

Even though the Time Deposit Scheme bears similarity with bank FDs, they differ with respect to several parameters. These differences are illustrated in the table below – 

Particulars Time deposit  Fixed deposit 
Rate of interest  5.5% to 6.7% 5.5% to 6.5% (average)
Additional interest for senior citizens No 0.25% to 0.5%
Interest payment frequency   Yearly Monthly, quarterly, or yearly.
Lock-in period 1 to 5 years. 7 days to 10 years.
Auto-renewal Only after prior application or in case of post offices with core banking solutions. Yes
Loan against the deposit  NA Available from some banks and NBFCs.
Premature withdrawal  After 6 months. Available any time with certain financial institutions.
Applicability of tax deducted at source (TDS)  No Yes

 

Post Office Time Deposit vs Other Post Office Savings Schemes

The post office offers several other schemes which can present lucrative investment opportunities for individuals. Following is a look at the differences between a Time Deposit Scheme and that of the other investment options offered by the Post Office.

Product Rate of interest Tenure Premature withdrawal  Income tax benefits under Section 80C
Time deposit 5.5% to 6.7% 1 to 5 years After 6 months Only on 5-year time deposit.
Recurring deposit 5.8% 5 years After 3 years Yes
Monthly Income Scheme 6.6% 5 years After 1 year but before 3 years/after 3 years No
Sukanya Samriddhi Account 7.6% Until the girl reaches 21 years of age or marries after 18. After the girl reaches 18 years of age. Yes
Public Provident Fund Account (PPF) 7.1% 15 years After 5 years Yes
Senior Citizen Savings Scheme (SCSS) 7.4% 5 years After 1 year Yes; TDS is applicable if interest earned is more than Rs.50,000.
National Savings Certificates (NSC) 6.8% 5 years Allowed in case of the certificate holder’s death or via a court order. Yes

 

Advantages

  • The Post Office Time Deposit Scheme guarantees a return on investment.
  • Section 80C of the Income Tax Act allows for a tax deduction on 5-year time deposits.
  • Even minors above the age of ten can manage their own accounts.
  • There is a nomination option available.
  • The investments are highly flexible, as they can be made with as little as Rs. 200 and have no maximum investment restriction.
  • Accounts can be readily transferred from one post office to another. Deposits can be withdrawn prematurely.
  • POTD investments are deemed safer than FDs because the principal amount invested and interest collected are guaranteed by the government.
  • The maximum number of accounts that can be opened in every post office is unlimited.

FAQs on Post Office Time Deposit

Q1. What is the bare minimum for opening a POTD?

A Post Office Term Deposit can be opened for as little as Rs.200.

Q2. Is it permissible to close POTD prematurely?

Yes, you can cancel your term deposit early. To do so, your account must have been active for at least the last six months. If the withdrawal is made between 6 months and 1 year, simple interest at the Post Office Savings Account interest rate will be paid. If the withdrawal is made after one year of starting the account, the applicable interest rate will be one percent lower than the interest rate corresponding to the initial duration of the account.

Q3. Is it possible to move my term deposit from one post office to another?

Yes, you can do so by submitting a manual application to the post office or by filling out the SB10(b) form.

Q4. Can I get tax breaks if I invest in POTD?

POTD investors can only benefit from tax breaks if the deposit is held for at least 5 years.

Q5. Which is preferable, a post office time deposit or a National Savings Certificate (NSC)?

The interest rate on NSC is calculated every half-year, but the interest rate on bank Fixed Deposits is calculated every quarter. As a result, the actual return on a bank’s fixed deposits can be higher. Taxation: Tax deductions of up to Rs. 1,50,000 per year are available for both FDs and NSCs.

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