Post Office FD Interest Rates: Everything You Need to Know

If you’re considering in a Post Office FD Interest Rates, it’s important to understand the Post Office Fixed Deposit and how it works.

This guide will provide you with all the information you need to make an informed decision about your investment.

What is a Post Office Fixed Deposit?

In Post Office, there are four types of Post Office Fixed Deposits which are famous with the name of Time Deposit Accounts or TD Accounts.

There are four categories of time deposit accounts, namely, One-year account, Two-year account, Three-year account, and Five-year account. The interest rates for these deposits are fixed by the government and are subject to change from time to time.

Interest in this account shall be payable annually. The annual interest may be credited to the Savings account of the account holder by submitting an application.

The investment under 5-year TD qualifies for the benefit of section 80C of the Income Tax Act, 1961. 

Interest Rates on Post Office Fixed Deposits.

Post Office Fixed Deposits are a popular investment option for many individuals due to their low risk and guaranteed returns.

The interest rates for these deposits are fixed by the Government and are subject to change from time to time.

Currently, the interest rate for a 1-year Post Office TD is 6.8%, for a 2-year TD it is 6.9%, for a 3-year TD it is 7.0% and for a 5-year TD, it is 7.5%.

It is important to note that the interest earned on Post Office FDs is taxable, and TDS (Tax Deducted at Source) is applicable if the interest earned exceeds Rs. 10,000 in a financial year.

Calculation of Post Office FD Interest Rates.

The interest on Post Office Fixed Deposits is calculated on a quarterly basis, but paid annually. For example, if you invest Rs. 1 lakh in a 1-year FD with an interest rate of 6.8%, the interest earned for the first quarter would be Rs. 1,700 (6.8% of Rs. 1 lakh divided by 4).

The interest earned for the second quarter would be calculated on the new balance of Rs. 1,01,700 (Rs. 1 lakh + Rs. 1,700), and so on. At the end of the 1-year term, the total interest earned would be Rs. 6,975.

It is important to note that the interest earned is taxable and TDS is applicable if the interest earned exceeds Rs. 10,000 in a financial year.

Benefits and Drawbacks of Investing in Post Office Fixed Deposits.

Post Office Fixed Deposits offer a number of benefits, including guaranteed returns, low risk, and easy accessibility.

Additionally, they are backed by the Government, making them a safe investment option.

Extension Of Account 

(i) On maturity depositor may further extend TD account for another tenure for which account was initially opened. 
(ii) TD account can be extended from date of maturity within the following prescribed period. 1 year TD = within 6 months of maturity, 2 year TD = within 12 months of maturity. 3/5 year TD = within 18 months of maturity. 
(iii) At the time of opening of account depositor can submit request for extension of account from the date of maturity. 
(iv). TD account can be extended after maturity by submitting prescribed application form at concerned Post Office along with passbook. 
(v) FD in Post Office Interest rate applicable to respective account on the day of maturity shall be applicable to the extended period.

Post Office FD Interest Rates In Case Of Premature Closure of Account 

(i) No deposit shall be withdrawn before the expiry of six months from the date of deposit. 
(ii) If TD account closed after 6 month but before 1 year, PO Savings Account Interest rate will be applicable. 
(iii) If 2/3/5 year TD account prematurely closed after 1 year, interest shall be calculated 2 % less than of TD interest rate (i.e. 1/2/3 years) for completed years, and for part period less than a year, PO Savings Interest rates will be applicable. 
(iv) TD account can be closed prematurely by submitting prescribed application form with pass book at concerned Post Office. 

Pledging of TD Account 

(i) FD account IN Post Office may be pledged or transferred as security. The prescribed application form at concerned Post Office supported with acceptance letter required to be submitted from the pledgee. 
(ii) Transfer/pledging can be made to the following authorities:-

• The President of India, Governor of the State.
• RBI, Scheduled Bank, Co-operative Society, or Co-operative Bank.
• Corporation Govt, Company, or Local Authority.
• Housing Finance Company.

However, the interest rates offered by Post Office Fixed Deposits are generally lower than those offered by other investment options, such as mutual funds or stocks.

Additionally, the interest earned is taxable and TDS is applicable, which can reduce the overall returns.

It is important to weigh the benefits and drawbacks before making a decision to invest in Post Office Fixed Deposits.