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 mail, India Post offers the following –
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.
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.
A few of the requisite details regarding investment in the post office term deposit are as follows –
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.
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 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.
The rates of interest applicable on a National Savings Time Deposit Account are listed below –
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 years, 3 years, and 5 years each. As per the prevailing rates, she will earn –
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.
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 a 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.
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.
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.
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.
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.
To open a Post Office Term Deposit, the following documents are required to be presented-
Even though the Time Deposit Scheme bears similarities 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 the 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 at any time with certain financial institutions.|
|Applicability of tax deducted at source (TDS)||No||Yes|
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 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|