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Tax Saving Bank FD Vs Post Office TD: Where Should You Invest To Earn High Returns?

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Tax-advantaged FDs are one of the most popular solutions to reduce your taxable income. The money you put in is safe, the returns are guaranteed, and the interest rates are set. However, the interest rate who wish to earn high returns gets confused between the post office and Banks deposit. Both Bank and Post office offers different deposit tax saving scheme such as Bank FD and Post Office Term Deposits.

 

These schemes allow the tax benefits under Section 80C of the Income Tax Act, 1961 up to Rs 1.5 lakh tax deductions on investments. If you are investing in these schemes only for tax benefits, you should avoid this. Your investment should also match your personal finance and investment strategies. Your tax-advantaged FDs or TDs must be a good fit for your financial goals. Investors should also keep the TDs aspect in mind Before investing in these schemes.

Bank Fixed Deposit

Bank Fixed Deposit

The interest earned on these FDs is taxed according to the investor's tax bracket after a minimum lock-in period of 5 years. Only the first holder stated on the FD receipt will be entitled to tax advantages if the investment is made jointly. On tax-saving FDs, investors can select between cumulative and non-cumulative interest alternatives. 

Premature withdrawals are not permitted from tax-saving FDs, which have a five-year lock-in term. If you're looking to invest for the medium term while still saving money on taxes, these tax-saving FDs with a 5-year lock-in period might be ideal.

Here are some banks (Interest Rate as of 16 March 2022) which are offering the highest rates:

BanksInterest Rate
IndusInd Bank6.50%
RBL Bank6.30%
IDFC First Bank6.25%
Yes Bank6.25%
DCB Bank6.25%

Source - Bank Website 

Note - The senior citizens get an additional 0.50% interest rate from most of the banks. Few banks such as SBI also offer a special scheme for senior citizens where the bank offers additional benefits to them. To know to offers and schemes details please visit the respective bank branch or website. 

 

Post Office Time Deposit (POTS)
 

Post Office Time Deposit (POTS)

The name of the POTS is National Saving Time Deposit Account. The deposit one made in the scheme for the 5-year fixed deposit account qualifies for an income tax deduction same as Bank FDs under Section 80C of the Income Tax Act of India, 1961. Time deposit at the post office Interest is paid on a quarterly basis but is paid yearly. 

 It is not possible to withdraw the investment from the POTS out of a tax-deferred savings account before it matures. With tax saver FDs, you won't be able to take money out early or borrow money. This is in contrast to a bank fixed deposit, which may be withdrawn early the next day. POTD is offered in four investment periods: one year, two years, three years, and five years. 

PeriodRate
1 Year5.50%
2-Year5.50%
3-Year5.5​%
5-Year6.7​ %

Source- Indiapost.gov.in

Tax Deducted at Source (TDS)

Fixed deposit interest is paid out monthly or quarterly on tax-saving fixed deposits. You can also opt to put it back into the market. The interest you earn is taxed based on the tax band in which your taxable income falls. 

 Conclusion

Conclusion

FDs from banks and TDs from post offices are substantially identical. There are, nevertheless, certain distinct features between the two. Bank FDs are regulated by individual banks, therefore interest rates vary from one to the next.

Post Office TDs are managed by post offices, with interest rates changing at the start of each quarter. Bank certificates of deposit can be bought for as little as four days or as long as ten years. One, two, three, or five-year POTDs are available.

When comparing interest rates, you'll discover that the Post Office time deposit has the greatest rate when compared to other bank fixed deposits. Postal Time Deposits, unlike banks, do not offer greater tax-saving interest rates to older residents. Post office TDs are safer since they are backed by the government of India

Read more about: post office fd bank sbi tax saving
Story first published: Wednesday, March 16, 2022, 12:54 [IST]
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