Fixed deposits or recurring deposits under the debt category are highly preferred by both regular and elderly people when it comes to commencing an investment in secure and risk-free instruments. These deposit schemes offer a variety of benefits, including low initial deposit amounts, flexible tenure, regular income, tax benefits under Section 80C of the Income Tax Act, liquidity, and flexible interest payout. Investments in FDs and RDs are risk-free and they are not market-driven, unlike other investment instruments, and while we're on the subject of safety, we'll look at the deposit schemes offered by the State Bank of India (SBI) and the Post Office of India.
SBI Fixed Deposit & Recurring Deposit
The country's largest lender offers an SBI Term Deposit scheme, which offers a variety of perks to investors. A fixed deposit can be made for 7 days to 10 years with a minimum deposit of Rs. 1,000/- and subsequent deposits in multiples of Rs. 100/-. There is no maximum limit on the deposit amount, and fixed deposit accounts can be opened through SBI Net Banking or Mobile Banking.
The bank pays out the applicable interest rates on a quarterly basis or at maturity. In the event of Term Deposits opening for a maturity period of twelve months or more, interest may be received at monthly, half-annual, or yearly periods based on the depositor's convenience. The bank, on the other hand, provides a Recurring Deposit product, which allows depositors to make monthly deposits of a fixed amount over a certain period of time.
A recurring deposit account can be opened with a maturity period ranging from 12 to 120 months. A minimum recurring deposit of Rs. 100/- per month is required, followed by deposits in multiples of Rs. 10/- with no maximum deposit limit. One can also apply for a nominee against an existing fixed or recurring deposit account, as well as transfer his or her deposit account from one bank branch to another.
It is also possible to take out a loan against a fixed deposit or recurring deposit account. Recurring deposit interest rates will be the same as Term Deposits applicable for the general public and senior citizens. The bank's interest rates for deposits of less than Rs. 2 crore were last updated on January 8, 2021, and the current interest rates on fixed and recurring deposits are as follows according to the bank's website.
|Tenors||Revised Rates For Public w.e.f. 08.01.2021||Revised Rates for Senior Citizens w.e.f. 08.01.2021|
|7 days to 45 days||2.9||3.4|
|46 days to 179 days||3.9||4.4|
|180 days to 210 days||4.4||4.9|
|211 days to less than 1 year||4.4||4.9|
|1 year to less than 2 year||5||5.5|
|2 years to less than 3 years||5.1||5.6|
|3 years to less than 5 years||5.3||5.8|
|5 years and up to 10 years||5.4||6.2|
Post Office Term Deposit Scheme
The Department of Posts offers a Post Office Time Deposit Account (TD) that works similarly to a bank account. This deposit scheme requires a minimum deposit of Rs. 1000/- and multiples of 100, with no maximum deposit limit. Post Office Time Deposit account can be opened for a maturity period of 1 year, 2 years, 3 years, and 5 years, and currently the Department of Posts is offering an interest rate of 5.5% on deposits maturing in 1 to 3 years and 6.7 % on deposits maturing in 5 years.
These interest rates are payable on an annual basis, however, they are determined on a quarterly basis. Investments under 5 year TD are eligible for tax benefit under section 80C of the Income Tax Act, 1961, just like tax-saving deposits of banks. On maturity, the depositor has the option to renew the TD account for an additional duration beyond the selected maturity period at the time of account opening.
A single adult or joint holder, a guardian on behalf of a minor, a guardian on behalf of a person of unsound mind, or a minor over the age of 10 years on behalf of his or her own name can open a time deposit account and earn the following interest rates, which are secure because they are backed by the Government of India.
Post Office Recurring Deposit Account (RD)
The Department of Posts also provides a National Savings Recurring Deposit Account (RD) as part of its post office savings schemes. The account can be established with a minimum deposit amount of Rs. 100/- per month or any amount in multiples of Rs 10/- with no upper limit for a 5-year term and after opening the account it will be eligible for an interest rate of 5.8% per annum (quarterly compounded).
By submitting an application to the concerned Post Office, the account can be renewed for another 5 years. A single person or joint holder, or a guardian on behalf of a minor, a guardian on behalf of a person of unsound mind, or a minor over 10 years on behalf of his or her name, can create a Post Office RD account.
The account can be started with cash or a cheque, with the date of deposit being the date of check clearance in the event of a check. RD accounts after three years from the date of account opening can be closed prematurely.
The main distinction between a post office FD and a bank FD is that a post office FD or RD can only be opened by Indian citizens, but bank FDs can be opened by NRIs, NROs, and Indian citizens as well. Another difference is that you can make a deposit for 1 to 5 years in a post office FD, but bank FDs have a duration of 7 days to 10 years, which is a point to consider here.
There is no additional benefit for senior citizens available in the post office, but banks pay additional interest rates to senior citizens for fd of 1 year or more. The interest payable in post office fixed deposit is annually but in banks, the interest is paid on a quarterly, half-yearly, yearly basis or as a lump sum on maturity which allows you to earn a regular flow of income from bank FDs.
For regular customers, a post office term deposit is a good bet because SBI's interest rates for the general public are lower than those of the post office, whereas senior citizens should opt for SBI's fixed deposit because they will earn additional rates of interest across all the tenors.
However, one thing to keep in mind is that post office do not deduct TDS on interest earned, whereas interest income from bank fixed deposits is subject to TDS at 10% if PAN is submitted or 20% if no PAN details are submitted to the bank.