Traditional and risk-averse investors often look for avenues to safely invest the surplus salary after meeting their expenses. Apart from bank fixed deposits, provident fund and savings accounts, such people can invest in small savings schemes offered by the government through post offices.
One such option is the post office time deposit (TD), commonly known as a post office fixed deposit. Just like bank FD, the scheme requires a one-time deposit for a set period, with the principal and accumulated interest paid at maturity.
The scheme offers four tenures of one, two, three and five years, allowing depositors to choose a period based on their financial needs. It can be a suitable option for those seeking assured returns without exposure to market fluctuations that can be witnessed in stocks and mutual funds.
How much interest does a Post Office TD offer?
Interest rates under the post office TD scheme vary according to the investment period. As per official details, the annual rates are 6.9% for one year, 7% for two years, 7.1% for three years and 7.5% for five years. The five-year deposit offers the highest interest rate among these options.
| TD tenure | Interest rate p.a. | |
|---|---|---|
| 1 year | 6.90% | |
| 2 years | 7.00% | |
| 3 years | 7.10% | |
| 5 years | 7.50% |
Source: India Post
Furthermore, interest is calculated quarterly and credited annually. The eventual rate depends on the tenure that is chosen by the individual investor.
How much can you earn on a ₹1 lakh investment?
Lets’ say you want to make an one-time investment of ₹1 lakh. Before committing the money, it is important to assess the potential returns. Here are the estimated returns based on calculations from Paisabazaar post office TD calculator:
— 1-year deposit: At 6.9% interest, a one-time deposit of ₹1 lakh will earn around ₹7,081. The maturity amount is ₹ ₹1,07,081.
— 2-year deposit: At 7%, the investment earns an interest of approximately ₹14,888 until maturity, taking the final corpus to ₹1,14,888.
— 3-year deposit: At 7.1%, a ₹1 lakh investment earns around ₹23,508. The maturity amount will be ₹1,23,508.
— 5-year deposit: At 7.5%, the investment earns approximately ₹44,995 in interest. The final amount will be ₹1,44,995 upon maturity.
Tax benefits on post office TD
The five-year post office time deposit offers certain tax benefits under Section 80C of the Income-tax Act, subject to applicable conditions.
You can claim a deduction of up to ₹1.5 lakh in a financial year across eligible investments, but only if you have opted for the old tax regime. Many deductions and exemptions are not available in the new tax regime.
However, the interest earned on the deposit is subject to tax. Therefore, the scheme should not be considered completely tax-free.
Can you extend the tenure?
A post office TD can be extended post maturity, only if the request is made within a set period of time, as per official rules. For a 1-year deposit, you can ask for an extension within 6 months of maturity. A 2-year deposit can be extended if request is submitted within 12 months of maturity.
For longer tenures such as 3 years and 5 years, you have to submit a request at the specified post office within 18 months of maturity.
For doing so, the depositor needs to submit an extension application form along with the passbook to the post office concerned, and this request can also be made when the account is originally opened.
Whatever the rate happens to be at that moment carries through the whole extended term, meaning the interest rate in effect on the maturity date is what applies for the entire extended tenure.
