Bank FD vs Post Office Time Deposit: Which is the smarter investment option?

Fixed Deposits (FDs) have been the favorite for Indian investors across age groups for decades. The safety of capital and assurance of returns are reasons why, especially in challenging market conditions. The recent surge in the FD interest rates is also another factor responsible for making it more attractive for investors.

When going this route, you have several options, which include, bank, company or post office FDs (POTD). Choosing between these options can seem challenging, but it is quite simple. All you need to do is understand the offerings and compare.

To that end and to identify the ideal investment option between the bank fixed deposits and the Post Office Time Deposits, read on.

What is a Bank FD?

A bank fixed deposit (FD) is a financial instrument that allows you to park your funds for a fixed tenor. Depending on the bank, the tenor can range between 7 days and 10 years. Once you invest, you get back your principal only after completion of the tenor.

Note that the bank FD interest rates may vary depending on several factors, which are:

  • The policies of financial institution you choose
  • The type of bank FDs you choose
  • The interest payout mode
  • The tenor
  • The principal amount 

What is a Post Office Time Deposit?

A Post Office Time Deposit (POTD) is also a fixed deposit and hence, often referred to as Post Office Fixed Deposit. It offers similar facilities as bank FDs, with a few unique features. The major difference between the two is that you can open and manage a POTD account only from a Post Office branch.

Any Indian citizen can open a Post Office Time Deposit account through cash or cheque. Just like bank FDs, you can open multiple POTD accounts without any restriction. Here, the rates offered change periodically as well.

Another notable feature is that you do not need a large corpus to get started. The minimum amount required to book a Post Office Time Deposit is ₹1,000 only. 

Difference Between Bank Fixed Deposit and Post Office Time Deposit

The following table depicts the difference between a bank FD and the POTD. Understanding the major differences between the two will help you choose the better investment option for you.  

Financial InstitutionYou can open a deposit from any of the commercial banks recognised and regulated by the RBIYou can open a POTD account from a nearest India Post Office branch
TenorUp to 10 yearsUp to 5 years
Interest RateThe Bank FD interest rates may differ depending on the bank and tenor that you chooseUp to 7.5% p.a . (The government revises these FD interest rates every quarter)
Minimum InvestmentDiffers depending on the bank you choose. Some banks have a minimum amount of ₹15,000.₹1,000
VolatilityThe Bank FD interest rates are linked to the RBI’s repo rate and change frequentlySince POTD is linked with government schemes, the interest rates on these FDs are considered relatively stable

SecurityThe FD principal and interest are insured for up to ₹5 Lakhs by the Deposit Insurance and Credit Guarantee Corporation (DICGC)POTD accounts come with a sovereign guarantee which means they are backed by the government
Benefits for Senior CitizensMost banks offer higher FD interest rates for senior citizen investors (These may be 25-50 basis points higher than the regular FD rates)Post Office Time Deposits offer similar interest rates to both senior and regular citizens
Tax BenefitsTax Deductions of up to ₹1.5 Lakhs in a financial year under Section 80C on five-year tax savings FDTax exemption of up to ₹1.5 Lakhs on POTD with tenor extending to 5 years under Section 80C
WithdrawalAllow premature withdrawal after levying penalty chargesPremature withdrawal is permissible but a penalty fee is applicable

Bank FD Vs Post Office Time Deposit: Which is the Smarter Investment Choice?

Now that you have understood the major difference between Bank FD and POTD, let us see which investment option can be better for you. When choosing between these fixed deposits, the first thing that you need to look at is the interest rates.

While bank FDs, on average, offer an interest rate of 7% p.a. on long-term FDs, these can go over 8% p.a. On the other hand, the FD interest rate on Post Office Time Deposit of 5 years is fixed at 7.5% p.a., currently. 

At present, bank FDs are offering higher interest rates as compared to Post Office Time Deposits. So, the former is the better investment option to maximise returns.

On the other hand, if you are a senior citizen, it makes perfect sense to go for the bank fixed deposits. This is because banks offer higher interest rates on senior citizen FDs. In conclusion, FDs have been one of the most attractive investment options for conservative investors looking for lower risk. This is because these offer guaranteed returns on the amount that you deposit after the completion of a fixed tenor.

If you are planning to park your funds in a fixed deposit, you can choose either a bank FD or Post Office Time Deposit. However, if you are confused between the two, start by assessing the FD interest rates offered by the two. 

In addition to this, consider other factors like penalty fees on withdrawals, maximum tenor, etc, before making the final decision.

Editorial Team

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