Interest rates on the larger bank deposits are dangerously low and at best avoided. While not that post office are offering significantly higher interest rates, but, even a 1 to 2 per cent higher rates are good enough in the present context.
|1-2 years||2-3 years||5 years and above|
|State Bank of India||4.90%||5.20%||5.40%|
|Post office time deposit||5.50%||5.50%||6.80%|
|Senior Citizens Savings Scheme||7.40%|
Even the time deposits of the post office are much better, if you consider a medium to longer term duration. The 5-year deposit in the post office fetches an interest rate of 6.8%, compared to a maximum of 5.5% offered by some of the larger banks in the country.
Some of the schemes of the post office like the Kissan Vikas Patra, Public Provident Fund and the National Savings Certificate also offer tax benefits under Sec80C, while under the PPF even the interest is exempted from tax.
Interest rates unlikely to go up in a hurry
Interest rates in the economy are unlikely to go up in a hurry, though investors are advised to stick to a duration of not more than 2 years when investing. As inflation starts edging up with economic growth gathering pace, we will see interest rates trending higher. When that happens investors who have invested for a longer term might get trapped. It is therefore advisable to stick to a shorter duration.
If you have to choose between post office and bank deposits, the obvious choice should be post office deposits. Yes, there are issues with regards to service, ease in opening and closing the account etc. However, if you are investing large sums of money it would be worth going through the effort.
Post office still have some way to go in order to offer investors ease and flexibility. We are living in a current regime, where interest rates are exceedingly low. This is unlikely to change anytime soon, though we expect interest rates to go higher in the next 2 years or so.