A Post Office Fixed Deposit is an investment opportunity provided by the Indian Postal Services that, similar to any other fixed deposit, offers a fixed rate of interest for a predetermined fixed tenor. Also known as Post Office Time Deposit, these are one of the oldest forms of investment provided by the Indian government.
A sovereign guarantee and an interest rate higher than that provided by banks makes this a very attractive opportunity for risk-averse investors.
The interest is calculated conveniently with the help of a Post Office FD Calculator.
Tenor: It has tenors of 1-,2-,3-,5-year. The respective tenors can be extended for another round of the same by making an application. The interest rate at the end of the first tenor will prevail for the next tenor.
Minimum Balance: A minimum of 1000 rupees and thereon in multiples of 100 rupees. There is however, no ceiling on investment.
Interest Rate: Like every asset class, the longer the tenor the higher the interest rate. The interest rate is fixed and is secure from market fluctuations. The current interest rates as of 2019 are as follows:
| Tenure | Interest Rate |
| 1 year | 5.5% |
| 2 years | 5.5% |
| 3 years | 5.5% |
| 4 years | 6.7% |
Interest earned on the 5-year deposit is eligible for tax exemptions under Section 80 [C].
Compounding: Above the high interest rates what makes the deal sweeter is compounding of interest earned. The interest is payable annually but compounded on a quarterly basis. If, the interest is withdrawn at the end of the year, it will not be considered for the interest calculation in the coming year.
To Liquidate: The investment cannot be withdrawn before the first 6 months from the date of the deposit. If a 2/3/5 year Term Deposit account is closed after a year but before the term is over there is a penalty of interest paid at a rate 200 basis points lower than the pre-fixed rate.
Pledging: The fixed deposit account can be pledged as a security for a loan from a bank, a housing finance company or a government authority. An application needs to be submitted to the Post Office along with an acceptance letter from the lender.
Use a Post Office Time Deposit Calculator
Find a reliable Post Office FD Calculator online. The formula calculates a compound interest by splitting a year into four quarters. You would require to enter:
- P=The Principal lump sum amount that you wish to invest
- N=The number of years, tenor
- R=The fixed annual interest rate corresponding to the tenor
Maturity Value = P * (1 + R/4)^(n*4)
The automatic Post Office Fixed Deposit Calculator makes an otherwise tricky calculation error-free and quick.
Only a single such deposit account can be made with a particular bank or non-bank finance company. However multiple such accounts can be made at the Post office. The account is transferable from one bank to the other.
In a Nutshell: If you are saving for a medium-to long-term goal and are looking for an option with the best returns that is available with a sovereign guarantee then a Post Office FD would be an ideal instrument.