Post Office Term Deposit

The futility to predict is best described by

The futility to predict is best described by Peter Drucker, who said; “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.” Yet predictability in life, especially with finances is something that many people look up to. Many of the financial products available at the post office provide this predictability which makes them one of the preferred products among the small savers.

You need to be a Resident Indian preferably with a post office savings bank account
Entry Age
• No age limit is mentioned
• A minor above age 10 years can open an account on their own name directly
• Minimum: Rs 200 and in multiples there of
• Maximum: There is no upper limit
• Interest rate of 8.20 per cent to 8.50 per cent depending on the tenure of the deposit
• Interest payable annually but calculated quarterly
• 1,2,3 or 5 years
Account holding categories
• Individual
• Joint
• Minor through the guardian
• Facility is available

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 is made up of the capital deposited and the interest it earns.

Investment Objective and Risks
The main objective of the POTD is to provide an assured return on the deposit depending on the duration of the deposit. The low-risk associated with this deposit scheme makes it a popular small savings deposit.

Capital Protection
The capital in the POTD is completely protected as the scheme is backed by the government of India, making it totally risk-free with guaranteed returns.

Inflation Protection
The POTD 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 which varies from 8.20 per cent for a year- to 8.50 for a five-year deposit. The interest rates on this deposit will be notified before April 1 of that year, and is aligned with G-Sec rates of similar maturity, with a spread of 0.25%.

The POTD is liquid, despite the deposit lock-in. One can borrow against the deposit or withdraw the deposit prematurely.
• Premature withdrawal or closure of the POTD is permitted after completion of six months of initiating the deposit.
• Withdrawal after six months but before completion of a year will earn 4 per cent that post office savings account earns.
• Withdrawal after a year earns interest which is 1 per cent less than what the deposit earns for that specific deposit tenure.

Other Risks
There is no risk associated with this investment and hence it is risk-free.

Credit Rating
As the POTD is offered by the government of India, it does not require any commercial rating.

Tax Implications
There is no tax benefit on deposits with less than five-year tenure. The five-year deposit qualifies for tax deductions under Section 80C on the sum deposited.

Where to open an Account
You can open the account at any head post office or general post office.

How to Open an Account
Once you have selected the post office to open the POTD account, you can open a POTD for which you will need the following documents:
• A deposit opening form provided by the post office.
• Address and identity proof such as copy of the passport, PAN (permanent account number) card or declaration in form No 60 or 61 as per the Income Tax Act 1961, driving license, voter’s ID or ration card.
• Carry original identity proof for verification at the time of account opening.
• Choose a nominee and get a witness signature to complete the formalities to start the deposit.

How to Operate the Account?
• You need a pay-in slip with the initial deposit opening sum to be credited into your account.
• Payment can be made by cash or cheque.
The POTD has a passbook with rules applicable to the account stated in them.

Points to Ponder
• Portability of the account from one post office to another
• Facility of extending the deposit on maturity
• Interest income is taxable but there is no TDS certificate issued.
• Maturity proceeds not drawn are eligible to saving account interest rate for a maximum period of two years.

Tips and Strategies
• Instead of depositing a large sum in a single deposit, one should consider splitting the deposit, which could also be across varying tenures. This way, in case of any premature withdrawal; only a few deposits will lose interest.
• One can stagger the deposits over different tenures to create variable income streams over time.
Going Online
There is no online access to post office accounts as yet.

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