Post Office FD vs Bank FD: Which is a better investment option?

Fixed deposits have always been an attractive investment option due to its low risk and assured return. Both banks and Post Offices offer FDs at attractive interest rates. In such a situation, it can be tough for investors to figure out which option would be better.

Here’s a comparison between Post Office and bank FDs and which will be better for individuals in terms of interest rate, tenure and other factors.

Post Office FD vs Bank FD: Which is a better option?

The Fixed Deposits offered by Post Offices are known as Time Deposits. The tenures of the account vary from 1 to 5 years. The account can be opened by an Indian individual or jointly by up to three adults. A bank fixed deposit can be of a joint ownership as well. Here are the major factors in which bank FDs and Post Office FDs could differ.

Interest Rate: The Post Office Time Deposit scheme offers interest between 6.9 and 7.5 per cent. Major lenders like HDFC Bank, SBI, Axis Bank and Punjab National Bank offer returns between 6.5 and 7.25 per cent on FDs.

Advantages to senior citizens: Banks normally offer an extra 0.5 per cent interest to senior citizens on FDs. This facility is not available in the Post Office Time Deposit plan.

Tenure: Term deposits in banks range from 7 days to 10 years, while post office fixed deposits have a maximum tenure of 5 years, which can be extended once.

Withdrawals: Both bank and post office FDs allow premature withdrawal of funds, but a penalty is involved. There are certain conditions that need to be met before the money can be withdrawn.

Tax benefits: The Post Office Time Deposit scheme of 5-year tenure qualifies for deductions of up to Rs 1.5 lakh under section 80C of Income Tax Act. Similarly, bank term deposits also provide deductions of a maximum of Rs. 1.5 lakh under section 80C.

Risk: While FDs in general are risk-averse investments, post office schemes are backed by the government, meaning they are extremely stable.

Both bank and post office FDs offer similar benefits. Investors need to see which option aligns better with their financial goals more and choose accordingly.

Benefits of a fixed deposit

Offer assured returns: Terms deposits offer consistent returns to consumers. This makes them a good option for investment.

Less risk: There is less risk of losses in FDs compared to mutual funds or equities.