For those who are hunting for stable and guaranteed returns on their investments, fixed deposits (FDs) are regarded to be the most popular investment option. All the leading banks, namely the State Bank of India (SBI), have cut interest rates on FDs due to the repo rate cuts by RBI. You can initiate an FD deposit with the Post Office as well, apart from banks. A quarterly adjustment of rates is seen in Post Office Time Deposits. But comparing both which can be the smart bet for you? Let's reveal the answer here:
Post Office Time Deposit
Term deposit schemes of the post office are equivalent to bank FDs. The term deposits provided by post offices vary from one year to five years. On 1 January 2021, the interest on deposits from the post office was updated. It currently gives an interest rate of 5.5 per cent on a one-year time deposit for three years. The Post Office proposes an interest rate of 6.7 per cent on a five-year term deposit.
Benefits of Post Office Term Deposit scheme
The following are only a few of the essential knowledge about the post office term deposit scheme:
Eligibility and account holdings: A time deposit account can be opened at any post office by any individual over the age of 10. In addition, guardians can open an account on a minor's name. That being said, once he or she meets the appropriate age, the minor needs to apply for managing the account. Accounts can also be owned by up to 3 citizens jointly. Account-holders can transfer their account from one post office to another across the country as well as they can hold multiple time deposit accounts.
Lock-in periods: For 1, 2, 3, and 5 years, investors have the option of opening a time deposit account. Account duration can, though, be extended by providing the post office with a written application.
Tax benefits: For a 5-year post office time deposit account, income tax benefits are only applicable. Under Section 80C of the Income Tax Act, 1961, depositors will be entitled to claim income tax deductions of up to Rs.1.5 lakh.
Interest rate calculation and payout: The interest rate of the post office term deposit is updated by the Government of India per quarter. Interest is measured on a quarterly basis and paid on an annual basis. The interest will be paid either in cash or through cheque, along with the principal. Payouts more than Rs.20,000 can only be rendered by cheque.
Deposit limit: Rs.1,000 is the minimum amount necessary to open a National Savings Time Deposit Account. Individuals are allowed to deposit Rs.100 in multiples. There is no overall contribution cap. The initial contribution in cash or cheque must be made by individuals. In the event that the payment is rendered by cheque, the date of payment will be defined as the opening date of the time deposit account.
Premature withdrawal: Within the first 6 months, a National Savings Time Deposit Account does not authorize the premature withdrawal. If the corpus is unnecessarily withdrawn within 6 months and 12 months, the post office term deposit rate will be in compliance with the rate specified for the post office savings account.
Interest rates comparison of Post Office Time Deposit Vs other small savings schemes
|Small Savings Schemes||ROI in %||Min & Max Deposit|
|Post Office Time Deposit||1 to 3 year - 5.5, 5 year - 6.7||Rs 1000, no upper limit|
|5 Year Post Office RD||5.8||Rs 100, no upper limit|
|Post Office Savings Account||4||Rs 500, no upper limit|
|Post Office Monthly Income Scheme||6.6||Rs 100 up to 4.5 lakh for single holder and 9 lakh for joint|
|Senior Citizen Savings Scheme (SCSS)||7.4 %||Rs 1000 up to Rs 15 lakh|
|15 year Public Provident Fund Account (PPF)||7.1 %||Rs 500 up to Rs 1.5 lakh|
|Sukanya Samriddhi Account||7.6%||Rs 250 up to Rs 1.5 lakh|
|National Savings Certificate||6.8 %||Rs 1000, no upper limit|
|Kisan Vikas Patra (KVP)||6.90%||Rs 1000, no upper limit|
SBI FDs is currently providing an interest rate of 2.9 per cent between 7 days and 45 days. Term deposits will yield 3.9 per cent between 46 days and 179 days. FDs will fetch 4.4 per cent rate during 180 days to less than one year. There will now be 10 bps higher for deposits maturing between 1 year and up to less than 2 years. Instead of 4.9%, these deposits will give an interest rate of 5%. 5.1 per cent will be offered by FDs maturing in 2 years to less than 3 years. FDs over 3 years or less than 5 years will deliver 5.3 per cent and 5.4 per cent will continue to grant term deposits maturing in 5 years and up to 10 years. With effect from 8 January 2021, these rates are valid. SBI provides an extra 50 bps interest rate across all the tenures to senior citizens.
Types of SBI FD schemes
Under SBI fixed deposit schemes, the following plans are applicable to customers:
SBI Term Deposit Scheme: Customers can selectively select a maturity period that ranges from 7 days to 10 years. Rs. 1,000 is the minimum required contribution against which they will get the loan and premature withdrawal facility.
Tax Saving SBI Fixed Deposit: With a maximum deposit limit of Rs 1.5 lakhs one can open a tax-saving FD scheme for a lock-in tenure of 5-years. Loans against FD and premature withdrawal facilities, though, are not open.
SBI Fixed Deposit Reinvestment Plan: With a minimum deposit amount of Rs 1000 one can invest in this scheme for a tenure ranging from 6 months and 10 years. The interest gained in this method is reinvested for higher interest production in the same scheme.
SBI Multi Option Deposit: It is a blend of an FD and a savings account. Depositors can partially withdraw the amount, while interest tends to be received on the remaining balance. With a minimum contribution threshold of Rs. 10,000, the tenure varies from 1 and 5 years.
SBI Annuity Deposit: Under this scheme, tenure periods come with 36, 60, 84 and 120 months and the contribution can be rendered via Equated Monthly Installments (EMI). Rs. 25,000 is the minimum contribution permitted under this scheme. However, premature withdrawal is only allowed after the demise of the primary account-holder.
Premature withdrawal facility
Based on the required value of an investment, early withdrawal of funds will result in interest rate deductions. Upon a 0.5% deduction on the specified rate of interest, he/she will receive the deposits if the deposit amount is less than Rs 5 lakhs. This interest deduction is 1% for deposits valued more than Rs. 5 Lakhs.
Regular investors are liable for one financial year to seek TDS deductions on interest income below Rs. 40,000. Submitting Form 15G to the bank is necessary for applicable investors to make use of these tax advantages. Similarly, senior citizens are allowed to seek TDS deductions on interest income below Rs 50,000 per annum. Hence, they need to submit Form 15H to the bank.
Loan against FD
SBI is offering a loan of up to 90% against FD to the holders. SBI provides loan against FD at a rate of 3.9 per cent to 6.4 per cent respectively. The maximum term of loans is limited to the overall period of the FD.
SBI FD Rates
|Tenure||ROI in % for general public||ROI in % for senior citizens|
|7 days to 45 days||2.90||3.40|
|46 days to 179 days||3.90||4.40|
|180 days to 210 days||4.40||4.90|
|211 days to less than 1 year||4.40||4.90|
|1 year to less than 2 years||5.00||5.50|
|2 years to less than 3 years||5.10||5.60|
|3 years to less than 5 years||5.30||5.80|
|5 years and up to 10 years||5.40||6.20|