Here's everything you need to know about the 1-, 2-, 3- and 5-years fixed deposit scheme offered by the Post Office
17-Aug-2021 •Research Desk
The post-office term deposit (POTD) is similar to a bank fixed deposit, where you save money for a definite time period, earning a guaranteed return through the tenure of the deposit. At the end of the deposit's tenure, the maturity amount comprises the capital deposited and the interest it earns.
The capital in the post office term deposit is completely protected, with guaranteed returns, as the scheme is backed by the Government of India.
The post office term deposit is not inflation protected, which means whenever inflation is above the guaranteed interest rate, the return from the scheme earns no real returns. However, when the inflation rate is below the guaranteed return, it does manage a positive real rate of return.
The interest rate on the POTD is guaranteed for the tenure one opts for. It currently varies from 5.5 per cent for a yearly deposit to 6.7 per cent for a five-year deposit. The interest rates on this deposit are notified every quarter and are aligned with G-sec rates of similar maturity, with a spread of 0.25 per cent. However, the rates will remain unchanged for the entire term of a deposit after one has made an investment.
The post office term deposit is liquid, despite the deposit lock-in. One can borrow against the deposit or withdraw the deposit prematurely.
There is no risk associated with this investment and hence it is risk-free.
As the POTD is offered by the Government of India, it does not require any commercial rating.
There is no tax benefit on the deposits with less than five-year tenure. The five-year deposit qualifies for income-tax deduction on the sum deposited under Section 80C.
Where to open an account
You can open the account at any head or general post office.
How to open an account
Once you have selected the post office to open the post office term deposit account, you can open a POTD for which you will need the following documents:
How to operate the account
Points to remember
To view the current rates on small-savings schemes, go to vro.in/s34211