Post Office Fixed Deposit (FD) Scheme

People in rural areas invest more in post office deposits in comparison to bank deposits. Nowadays the government allows private banks and public sector banks to open a post office fixed deposit scheme for its customers.

What is a Post Office Fixed Deposit?

A fixed deposit is an investment scheme that allows one to deposit in fixed deposits in order to earn interest on the investment. The duration of these FD is 1-year, 2-years, 3-years and 5-years. The fixed deposit interest rate currently varies from 6.9% to 7.7%. The FD interest that is paid is charged with Tax Deduction at Source (TDS). By investing in this deposit scheme one can get tax benefits under section 80C in the old tax regime.

The FD scheme or post office time deposit makes a good alternative to the bank FD. Indian Postal Services enable an individual investor to invest money in a post office fixed deposit scheme and earn a guaranteed return on the deposited amount for a fixed span of time.

Eligibility Criteria to Open a Post Office FD Account

The account can be opened by:

• A single adult
• Minor above 10 years of age
• Joint Account (3 adults max.)
• A guardian on behalf of a minor/ or specially challenged person

Post office savings account holders with internet banking facility can open FD or Post Office time deposit (POTD) scheme online.

Who Can Invest in a FD Scheme?

A post office fixed deposit scheme is suitable for conservative investors like retirees or those about to get retired. It makes an ideal investment option for those who are looking for a low-risk investment option with a steady income along with capital protection.

Both cash and cheque payments can be done to open a post office fixed deposit scheme. If the payment is done via cheque then the date of realization of the cheque shall be considered as the date of opening the account. However, NRIs cannot open a post office fixed deposit scheme.

Features and Benefits of Post Office FD

From premature withdrawals to the integration of savings account or integration with recurring deposits, there are various features and advantages that follow. Some of them are discussed below:

• Fixed Deposit Investment Amount – There is no limit on the number of accounts in a post office. However, there can be only one deposit for one specific amount. The minimum deposit limit is Rs. 1-00 with no limit on the maximum amount (in multiples of Rs. 100 only).
• FD Maturity – Once the scheme is matured, a renewal form needs to be filled. However, some post offices with CBS facilities provide the auto-renewal option as well.
• Integration with RDs– The account holder can file an application to direct the monthly interest payments to a five year RD. Provided the savings account is in the same post office. This facility is available only at the HOD sub- Post offices.
• Integration the Post Office Account with the Savings Account – The account holder can also instruct the post office to redirect the FD interest earned to the savings account in the same post office. This facility is also available only at the HOD sub- Post offices.
• Premature withdrawal – Premature withdrawals on the post office fixed deposit scheme is not allowed before six months. If one exits within 6 months to 1 year then the interest earned will be reduced to 4%. After that, the account holder can exit with a 1% penalty on the FD interest rate.
• Taxation – The tax benefits under section 80C are valid only on 5-year FD. FDs with tenure of less than 5 years are not eligible for tax benefits. The interest earned on such FDs needs is taxable as per the applicable tax rate. 

Post Office FD Interest Rates

The government decides the FD interest rate that is paid every year but is calculated quarterly. The FD interest rates for January 2020 to March 2020 remain the same as in the previous quarter and are given in the table below:

Post Office FD Calculator

A FD calculator makes a great investment tool to calculate the returns on FDs:

• The calculator breaks up the maturity value into interest earned and the maturity value.
• Information required for the calculator includes:
• Investment Amount
• The current rate of FD interest
• Investment tenure
• Deposit Term
• Frequency
• And then click calculate
• For instance, if the invested amount is Rs.1 lakh for a period of 5 years in a FD, the total interest earned will be Rs.46, 034 and the maturity value of the deposit will be Rs.1, 46,034.

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Documents Required for Post Office FD

Once the post office branch is selected to open the time deposit account, the following documents are required:

• The applicant needs to fill and submit the FD opening form.
• Address and ID Proof such as the Aadhaar card or passport copy.
• Declaration in Form 60 or 61 or PAN (permanent account number) card.
• Voter's ID, driving license, or ration card.
• Original ID proof is required for account verification.
• Mention a nominee and get the signature of a witness to complete the formalities.