The post office offers time deposits or as we call them fixed deposits, offer interest rates that are way better than banks. When we talk of interest rates being better than banks, we are talking of the interest rates being offered by the larger sized banks in the country.
A look at interest rates of post office vs large banks
|5-year deposit interest rate|
While the above is for a longer term duration of 5-years, even the 1, 2 and 3 year deposit interest rates are much better in the case of post office than banks. For a shorter term duration the interest rates on the bank deposits are at least 1 per cent lower than the post office national time deposits.
Post office deposits are extremely safe
Compared to banks, post office deposits are even safer. These are backed by the Government of India and hence there should be no problem in getting your maturity and principal amount, even for a slightly longer duration. The 5-year deposits quality for tax exemption under Sec 80C of the Income Tax, though the interest earned is fully taxable under the hands of investors.
For those looking at a slightly longer term tenure the post office National Time Deposit Accounts are a good bet. Any number of accounts can be opened for fixed deposits, which means multiple accounts are available. It's important to remember that pre-mature encashment is not possible before a period of six months. An individual opening a time deposit account must also have a post office savings account where the interest amount is credited.
May not be great on technology and service aspects
The one drawback of opening a post office account would be the fact that technology wise the banking experience would leave much to be desired. In the case of banks the processes would be far superior as compared to the post office.
Apart from this, if you are expecting exemplary service standards like banks, you maybe left disappointed. These deposits offer you two things: one is higher interest rates and the second is safety.
The features like nomination etc., are also available in the case of post office time deposits. Overall, if you are looking at that little bit extra, you should go for the post office deposits. The shorter term tenure would be ideal, given that interest rates in the economy are headed higher and could up from here. So, if you lock your money in 5-year deposits and interest rates move higher. You could -end up losing. Our own belief is that from here on, interest rates are unlikely to go down too much.
About the author:
Sunil Fernandes has spent 26 years covering business and finance in India and abroad. Sunil has worked with frontline daily newspapers including Hindustan Times, Deccan Herald and Gulf Times. He has also worked with investment magazines like Dalal Street Investment Journal and Oman Economic Review. Sunil's areas of interest include commodities, equities, mutual funds, tax planning and debt instruments.