Overview of Post Office Time Deposit

The Post Office Saving Schemes include many products that offer the reliability and risk free return on investment. One of them is Post Office Time deposit

Advantages of Post office saving schemes in India:-

Easy to invest
Simple procedure to enroll
Investments for long-term
Tax exemption in most schemes
Risk-free & competent interest rates

The Post Office Time Deposit (POTD) is also known as ‘post office fixed deposit’ or ‘post office term deposit’. It is a convenient alternative to the fixed deposits provided by banks.

The use of post office time deposit has been more in the rural areas as compared to banks’ fixed deposit schemes. One can choose any tenure from 1-5 years for a POTD. The interest rate increases with the number of years you choose to apply for.

Currently there are more than 93,55,825 post office time deposit accounts established across the country.

The account holders have the freedom to open as many accounts as they want in any post office. Single accounts or joint account by two or more individuals can be opened. Single account can be converted into joint accounts. Similarly, joint accounts can also be converted to single accounts.

Account can be opened by cash /cheque. In government records, the date of realization of the cheque will be taken as the date of opening the account.

The proceeds of maturity that are not withdrawn by the account holder are automatically renewed for the original deposit tenure with interest rates applicable on the date of maturity.

Where can a person open POTD?

To invest in a POTD, a person doesn’t have to necessarily open it at a post office closest to where you live. Recently, the central government has authorized all public sector banks and private ones like ICICI Bank, Axis Bank, and HDFC Bank to allow investors to open POTD accounts.

Post Office Time Deposit Suitablility

For:-

Conservative investors who are looking to invest lump sum amount and earn assured returns on their investment. It is suitable for a person who has goals which are 5 years away.

Not for:-

Investors who are looking for wealth creation over a long term should not invest in post office recurring deposit. The reason behind this is inflation. The returns from the RD would not be able to beat inflation over a longer period of duration. Post office recurring deposit is also not suitable for investors who want to invest small amounts regularly.

Guaranteed Returns

Post office time deposit scheme guarantees assured returns on the account holder’s investments.

Through this scheme offered by Indian Postal services, an individual can earn a guaranteed return from the money deposited for a fixed period of time.

Interest Rates on Post Office Schemes August 2018

The currents interest rates of POTD are:-

1 year – 6.6% per annum.
2 years – 6.7% per annum.
3 years – 6.9% per annum.
5 years – 7.4% per annum.

Taxation

No tax deducted at source (TDS) in post office time deposits. But it doesn’t mean that the interest is tax free. The interest income earned is liable to be taxed as per the applicable tax rate. It’s only the 5-year deposit that carries the tax benefit under section 80C of the Income Tax Act.

The investment under post office time deposit (5 year deposit) is eligible for the benefit of Section 80C of the Income Tax Act, 1961 from 1.4.2007.

With effect from 1 April 2018, any interest received by senior citizens from deposits in post office would be exempt up to Rs 50,000 under Section 80TTB.

Liquidity

Post office time deposit accounts permits the account holders to withdraw funds before maturity. The deposit tenure ranges between 1-5 years. So the account holders get the added advantage to withdraw interest on a yearly basis at compounded rates.

A POTD cannot be closed in the initial 6 months from the date of the first deposit made. If the account is closed after 6 months but before 1 year interest payable on a post office time deposit will be paid. After that, one can prematurely exit with a discount of 1 percent on the interest rate payable.

Account Portability

Portability of the account from one post office to another is available. A post office time deposit account can be transferred from one post office to another.

Also, customers are free to open any number of time deposit accounts in any Post Office of their choice. POTD has a flexible approach.

Alternative Investments

If an investor doesn’t want to invest in post office time deposit, it has the following alternatives available, which have same characteristics:-