Fixed Deposits (FDs) are among the most popular investment options in India, offering a secure and stable way to grow savings. With its increased popularity within investors, the feud between post office vs bank fd is in the limelight. Investment patterns are distinctive to each individual, but understanding ‘which is better post office fd or bank fd’ when both options offer unique features and benefits, making it essential to analyze and compare them thoroughly to make an informed decision. In this article, we will delve into the various aspects of post office vs bank interest rates to understand which option aligns best within different financial goals.
Interest Rate Difference: Post Office vs Bank Fixed Deposits
Interest rates play a crucial role in determining the overall returns from a fixed deposit. Let’s see how interest rates vary with Post Office and Banks:
Post Office FDs
- The interest rates for Post Office FDs are set by the government and are subject to revision from time to time.
- These rates are generally attractive and provide a competitive edge over some Bank FDs.
FD interest rates for normal and senior citizen:
| Tenure | Normal Citizen FD Rate | Senior Citizen FD Rate |
| 11 months 29 days | 6.90% | 6.90% |
| 1 year – 2 years 11 months 29 days | 7% | 7% |
| 3 years – 4 years 11 months 28 days | 7.50% | 7.50% |
| 5 years | 7.50% | 7.50% |
Bank FDs
- Unlike Post Office FDs, Bank FD interest rates are not uniform and can vary significantly from one bank to another.
- Typically, major public and private sector banks offer FD interest rates ranging from 4% to 7% for various deposit periods.
- Some smaller banks and cooperative banks may provide slightly higher interest rates to attract customers.
Bankwise interest rates for Normal and Senior Citizen
| Bank | Normal Citizen FD Rate | Senior Citizen FD Rate |
| HDFC Bank | 3.00% to 7.20% | 3.50% to 7.70% |
| ICICI Bank | 3.00% to 7.10% | 3.50% to 7.60% |
| Axis Bank | 3.00% to 7.10% | 3.50% to 7.60% |
| State Bank of India | 2.75% to 7.00% | 3.25% to 7.50% |
| Bank of Baroda | 3.50% to 7.25% | 4.00% to 7.75% |
Tenure Options
In a comparison between post office vs bank FD, both offer a range of tenure options that cater to diverse needs. Investors can choose a specific tenure based on their financial goals and risk tolerance. The table below showcases the difference in tenure for both the options-
Tenure period varies for Post Office and Bank FDs:
| Post Office FDs: | Bank FDs: |
| Post Office FDs offer tenure options ranging from 1 to 5 years. | Bank FDs offer more flexibile tenure options, ranging from 7 – 10 years or more. |
| Longer tenures often attract higher interest rates, rewarding those who can keep their funds locked-in for an extended period. | This flexibility allows investors to ladder their FDs, managing liquidity and reinvestment more effectively. |
Tax Implications
Taxation is a critical aspect that significantly impacts the effective returns from fixed deposits. While comparing you may find some basic difference given Income taxes different sections and subsections:
Basic interest earned from Bank FD and Post Office FD:
| Post Office FDs: | Bank FDs: |
| Interest earned on Post Office FDs is fully taxable as per the investor’s income tax slab. | Interest earned on Bank FDs is also fully taxable based on the investor’s income tax slab. |
| However, Post Office FDs offer a unique benefit. Under Section 80TTA of the Income Tax Act, interest income of up to ₹10,000 in a financial year is exempted from tax for individual taxpayers. | Unlike Post Office FDs, Bank FDs do not provide any specific exemption for a certain interest income amount. |
Premature Withdrawal
In times of financial emergencies,premature withdrawal might become a viable option for many individuals.While both FD’s provide flexibility in emergencies, it may come with penalties or reduced interest rates.
Given below are some fundamental distinctions in premature withdrawal between banks and post offices:
Premature withdrawal of FD can have different implications for Post Office and Bank:
| Post Office FDs: | Bank FDs: |
| Post Office FDs allow premature withdrawal, but the interest rate applicable in such cases is lower than the contracted rate. | Most banks allow premature withdrawal of FDs but the penalties and rules may vary. |
| The penalty for premature withdrawal in Post Office FDs is typically 1% reduction in interest rates for the period for which the deposit remained with the Post Office. | Banks may impose a penalty on the interest rate, ranging from 0.50% to 1.00%, or the rate applicable for the actual tenure of the deposit, whichever is lower. |
Bank vs Post Office Which is Safe For Fixed Deposit
Both Post Office FDs and Bank FDs are safe. Some basic difference are mentioned below:
| Post Office FDs: | Bank FDs: |
| Post Office FDs are considered extremely safe as they are backed by the Government of India. | Bank FDs, especially those with reputed and well-established banks, are also relatively safe. |
| In case of any financial distress, the government stands as the guarantor, ensuring that investors’ principle and interest are protected. | Bank deposits are protected up to ₹5 lakhs per account holder by the Deposit Insurance and Credit Guarantee Corporation (DICGC) in the event of a bank’s failure. |
| Fixed interest rates for the entire tenure | Higher interest rates (typically) |
| Wider range of tenure options | Wider range of online services |
Also Read: Find the Best FD Rates from Top Small Finance Banks
Conclusion
Post Office FDs and Bank FDs, both have their respective merits and demerits., The choice between the two depends on individual financial goals, liquidity requirements, tax considerations, and risk tolerance.
Ultimately, investors should carefully assess their financial objectives and compare the interest rates, tenure options, tax implications, and withdrawal terms before making a decision.
Stay tuned with Buddy Loan for more such topics and if there is anything we are missing out, do tell us the topic you want us to explore!
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Frequently Asked Questions
Q.Which one is safer, Post Office FD, or Bank FD?
A. Both Post Office FDs and Bank FDs are considered relatively safe investment options.
Q.What is the interest rate difference between Post Office FD and Bank FD?
A.The interest rate difference between Post Office FD and Bank FD can vary based on the specific bank and Post Office scheme.
Q.Which FD offers better returns, Post Office or Bank?
A.The choice between Post Office FD and Bank FD in terms of better returns depends on various factors, including the prevailing interest rates, deposit tenure, and individual financial objectives.
