Tag Archive : Post Office Schemes

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The proceeds of maturity that are not withdrawn by the account holder are automatically renewed for the original deposit tenure with interest rates applicable on the date of maturity.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.
1y POTD
2y POTD
3y POTD
5y POTD

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:-

  • Bank Fixed Deposit
  • National Savings Certificate
  • Company Deposits
  • Debt Mutual Funds
Overview on Post Office Time Deposit.png

Overview on Post Office Recurring Deposit

Postal savings systems provide depositors who do not have access to banks a safe and convenient method to save money. Many nations operate banking systems involving post offices to promote saving money among the poor.

Post Office, the Department of Post, is also known as India Post. It offers many services to the Indian population.

India Post offers its customers the facility of a Post Office Recurring Deposit (RD) (5-Year). It is a deposit scheme which allows customers to add to their savings by investing money which earns interest over a fixed period of time. An RD is usually opened for a fixed period of time and deposits must be made at preset intervals. The intervals may be monthly, quarterly, depending on the terms and conditions of the deposit scheme. Unlike a fixed deposit, an RD is not a one-time investment and may be closed before its maturity date.

The Post Office Recurring Deposit Account is an ideal investment option for first time investors or young professionals. This is so as it does not need customers to invest large sums of money towards installments. But it does earn you handsome interest at the end of the maturity period.

One can open an account by cash / cheque. In case of cheque, the date of deposit will be the date of presentation of cheque.

One has the option to convert a single account to a joint account. And Vice Versa

Post Office Recurring Deposit Suitablility

  • For:-

Conservative investors who are looking to invest regularly and earn assured returns on their investment. It is suitable for a person who has medium term 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 invest a lump sum amount.

Guaranteed Returns

The principal and interest on the Post Office Recurring Deposit are absolutely guaranteed. The interest is compounded every quarter, which ensures that a sum of money multiplies by the time it matures.

Returns on recurring deposits are guaranteed for the duration of the deposit. Also, there is no risk of loss of principal.

Currently this RD scheme offers an interest rate of 6.90% per annum which is compounded quarterly. This interest rate converts to 7.08% per annum when compounded annually.

Interest Rates on Post Office Schemes August 2018

For example, if a person deposits Rs. 10/- at the above interest rate every month in his RD account, he/she will get Rs. 717.4​3 on the maturity of the deposit.

Post office RD Interest rates

No Tax Benefits

There are no tax benefits available by investing in post office recurring deposit. The interest income is also considered as taxable income. This interest income will be taxed under the income head of ‘Income from Other Sources’. RD is taxed as per the applicable income tax rate.

There is no TDS deducted.

Rebate facility:-

Post office recurring deposit provides rebates on advance deposits. These rebates are not much, but can help an individual with small resources save a considerable amount for other purposes.

  • If you deposit more than 6 but less than 11 installments in advance in a month – Rs.1 discount for each Rs.10 installment. Thus, if you are depositing Rs.10,000 then the discount is Rs.1,000.
  • If you deposit more than 12 installments in advance in a month – Rs.4 discount for every Rs.12 deposits and one rupee for every Rs. 10 deposit ahead.

Fairly Liquid Investment

There are situations where one is in urgent need of money. It is not recommended to close an RD before its maturity. But there is a provision for premature withdrawal of the amount in an RD.

After one year of opening the account one withdrawal up to 50% of the balance is allowed. It may be repaid in one lump sum along with interest at the prescribed rate at any time during the currency of the account.

 Account Portability

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

Also, customers are free to open any number of recurring deposit accounts in any Post Office of their choice.

Alternative Investments

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

  • Bank Recurring Deposit
  • Debt Mutual Funds
Overview on Post Office recurring Deposit

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