Is a Post Office Fixed Deposit Good for your Future?

A fixed deposit (FD) is a financial instrument provided by banks or NBFCs which offers investors a higher rate of interest than a regular savings account, until the maturity date. The interest rate is fix for the entire tenure of the deposit, regardless of changes in the market rate. Post office FDs are one of the safest investment options with guaranteed returns. They are backe by the government and offer a higher interest rate than bank FDs.

However, post office FDs have a few drawbacks. They have lower liquidity as compared to bank FDs. This means that you cannot withdraw your money before the maturity date without paying a penalty. Another downside of post office FDs is that they offer a lower return than other investment options such as mutual funds and stocks. If you are looking for higher returns, you should consider other investment options. Overall, post office FDs are a safe and secure investment option with guaranteed returns. They may not offer the highest return on investment, but they are low risk and provide peace of mind.

The Reserve Bank of India’s 5 consecutive repo rate cuts brought the rates down to a significant low of 5.15%. It has thus made loans and advances affordable for households as well as the corporate sector in India, thus increasing their propensity to spend.

On the flip side, a downward trend in savings and investment, especially from the household sector, was observe. Although low domestic savings stress the investment capacity of the economy, the recent recovery in gross domestic savings can be looke up to as a positive trend to pick up.

  • After a continuous fall in gross domestic savings, it recovered marginally from 31.3% in the financial year 2017 to 31.5% in the financial year 2018.
  • Household financial savings in the 5 previous years remained stable at close to 10% of the country’s GDP.

The substantial Post Office FD Rates, as well as stable guaranteed returns, are one of the leading reasons why this investment avenue, as well as many others, are being utilized by individuals to accumulate savings. Post office fixed deposits (FDs) are widely considered a potent investment tool to increase financial security. Know how opening an FD account can be your ticket to financial independence.

An overview of post office fixed deposit

Post office fixed deposits are risk-free investment options that offer assured returns at fixed rates. Similar to FDs offered by leading financiers, post office FDs are suitable for investors with a low-risk appetite looking for instruments that help fulfill long-term financial goals.

Notably, post office fixed deposits have been a preferred investment option for individuals over the years.

  • Post office FDs with a duration of 1 to 2 years have been among the most preferred ones witnessing a deposit of close to Rs.29,500 billion in FY19, up from Rs.25,400 billion in FY18.
  • Next in line were post office FDs with a 5-year tenor. Their total deposits were recorded at Rs.10,000 billion in FY19 from Rs.9,500 billion in FY18.

Post office fixed deposits – A suitable investment option

The following are some of the high points of post office fixed deposits, also known as term deposits that make them suitable investment options for future financial goals.

  1. Post office FDs are available in 1-year, 2-year, 3-year, and 5-year term options, with income tax benefits for 5-year FDs under section 80C of the Income Tax Act 1961.
  2. Post office FD rates are higher than on many other savings and investment schemes offered by India Post.
  3. Investors have an option to avail of interest earned on FDs annually in their savings account.
  4. You can start a post office FD with a small amount of Rs.1,000 with no limit to maximum investment.
  5. Investors can opt for the Monthly Income Scheme as an FD variant to generate periodic income through lump-sum investment. Post office FD rates under this scheme are applicable at 7.6%.
  6. Post office fixed deposits can also be opened for minors above 10 years of age along with a guardian. Thus, it is also available as an investment option to ensure your child has a secure future.
  7. The scheme allows the conversion of a single account to a joint account and vice versa. You can thus add or remove a participant to your FD account as and when needed.
  8. You have the option to extend the term of your fixed deposit via an application to your concerned post office. This provides flexibility for changes to revised financial goals.

A post office FD thus serves suitably to help create a substantial corpus and fulfill financial needs in the future.

As for post office FD rates, you can earn returns at the rate of 6.9% in the case of FD investments of 1, 2, or 3 years. FDs for a 5-year term help you earn interest at the rate of 7.7%.

Interest calculation and payment for post office FD

Interest is calculate quarterly for post office FDs but is payable annually. You have the option to avail disbursal of the interest income to your preferred financial account at the end of each year throughout the tenor or the total amount on the term’s maturity.

Investors can also make premature withdrawals of their post office FD against a nominal penalty payment.

Other benefits of the investment option include facilities like multiple deposits, periodic payout options, loans against FD, flexibility in the choice of tenor, and more. The plan has also acquired the highest stability ratings to ensure your investment is risk-free.

While post office FD rates are attractive, it is essential to compare them with other options for FD investment to make an informed decision and select a suitable financer. Choosing the right financer not only ensures your future is financially secure but also eases the accessibility and management of your funds.

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